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  • Author: Robert Levy
  • Publication Date: 10-2016
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: It’s doubtful that new gun controls—imposed mostly on persons who are not part of the problem—will be ef- fective. Accordingly, they should expire automatically after a reasonable test period. If they work, they can be reenacted. The Second Amendment doesn’t bar sensi- bleregulations,butitdemandsrigorfromourlawmak- ers and the courts in legislating and reviewing gun control measures.
  • Topic: Arms Control and Proliferation
  • Political Geography: America
  • Author: Fredrik Erixon, Bjorn Weigel
  • Publication Date: 10-2016
  • Content Type: Special Report
  • Institution: The Cato Institute
  • Abstract: The great value of innovation is not merely in invention but rather diffusion and adaptation. And real innovation requires an economy that runs on the culture of experimentation and is open to innovators and entrepreneurs contesting markets—challenging incumbents to such a degree that it redefines the market (like Apple’s iPhone did with the handset market in 2007). In the past decades, however, these forces of diffusion and adaptation simply have not been powerful enough; in fact, legislators have acted to shield incumbent businesses from them. Now the existential challenge that capitalism faces is the growing resistance to innovation.
  • Topic: Economics, Political Economy, Digital Economy
  • Political Geography: America, Global Markets
  • Author: Mark A. Calabria
  • Publication Date: 01-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
  • Topic: Economics, International Trade and Finance, Financial Crisis, Reform
  • Author: Patrick J. Michaels, David E. Wojick
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The purpose of this report is to provide a framework for doing research on the problem of bias in science, especially bias induced by Federal funding of research. In recent years the issue of bias in science has come under increasing scrutiny, including within the scientific community. Much of this scrutiny is focused on the potential for bias induced by the commercial funding of research. However, relatively little attention has been given to the potential role of Federal funding in fostering bias. The research question is clear: does biased funding skew research in a preferred direction, one that supports an agency mission, policy or paradigm? Federal agencies spend many billion dollars a year on scientific research. Most of this is directly tied to the funding agency mission and existing policies. The issue is whether these financial ties lead to bias in favor of the existing policies, as well as to promoting new policies. Is the government buying science or support?
  • Topic: Government
  • Author: George Selgin
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Not long ago a colleague of mine, who works regularly with legislators, attended a conference at which the lunch speaker, a famous economist, began by telling everyone why governments regulate financial institutions. The reasons the economist gave consisted of various (supposed) financial-market failures. Said the colleague to me later: “I just wanted to stand up and shout, 'That's got nothing to do with it!'” I relate this because some readers may otherwise fail to appreciate the importance of a work whose chief revelation is that financial legislation — and consequently the general structure of financial systems — are shaped by politics. My colleague didn't need to be told, but others, including many economists, evidently do. In Fragile by Design: The Political Origins of Banking Crises Scarce Credit, Charles Calomiris and Stephen Haber tell them. Banking arrangements, they argue, are “not a passive response to some efficiency criterion but rather the product of political deals that determine which laws are passed” (pp. 13 and 38). What's more, the laws such deals give rise to are, more often than not, detrimental to bank safety and soundness. In few words, banking instability has its roots, not in any fragility inherent to commercial banking, but in deals struck between governments and various interest groups. Fragile by Design is at once an alternative interpretation of the history of banking and a contribution to the debate on the causes of the recent crisis. Though other reviewers have tended to focus their attention on the latter contribution, many of Fragile by Design's most important insights, as well as many of its more serious flaws, are independent of its take on the subprime crisis. It is to those insights and flaws that I wish to draw attention
  • Topic: Government
  • Author: Norbert J. Michel
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: We now have a 100-year history by which to judge the Federal Reserve's performance. On balance, the Fed has not increased economic stability relative to the pre-Fed era. The Great Depression, the great stagflation, and the 2008 financial crisis have all occurred on the Fed's watch. Even excluding the Great Depression, business cycles have not become appreciably milder, nor have recessions become less frequent or measurably shorter. The Fed has strayed so far from the classic prescription for a lender of last resort—to provide short-term funds to solvent institutions at penalty rates—it strains all reason to suggest that it has successfully fulfilled that function. Its regulatory failures are numerous. It failed even to see the 2008 financial crisis coming. Perhaps the best that can be said about the Fed is that the variability in inflation has declined since 1984.
  • Author: Mark A. Calabria, Michael Krimminger
  • Publication Date: 02-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Not long ago a colleague of mine, who works regularly with legislators, attended a conference at which the lunch speaker, a famous economist, began by telling everyone why governments regulate financial institutions. The reasons the economist gave consisted of various (supposed) financial - market failures. Said the colleague to me later: “I just wanted to stand up and shout, 'That's got nothing to do with it!'”
  • Topic: Economics
  • Author: Robert P. Murphy, Patrick J. Michaels, Paul "Chip" Knappenberger
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: A vigorous campaign aimed at American policymakers and the general public has tried to create the perception that a federal carbon tax (or similar type of “carbon price”) is a crucial element in the urgently needed response to climate change. Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue-neutral carbon tax swap could even deliver a “double dividend” — meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as the U.N. and Obama Administration reports — reveal that the case for a U.S. carbon tax is weaker than the public has been told.
  • Topic: Climate Change, Economics, Energy Policy, Politics
  • Political Geography: Global Focus
  • Author: Julio Garin, Robert Lester, Eric Sims
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting.
  • Topic: Economics, Human Welfare, Markets, GDP
  • Political Geography: Global Focus
  • Author: Joshua R. Hendrickson, David Beckworth
  • Publication Date: 06-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Over the last few years, the Federal Reserve has conducted a series of large scale asset purchases. Given the Federal Reserve’s dual mandate, the objective of this policy has been to generate an increase in real economic activity while maintaining a low, stable rate of inflation. The effectiveness of large scale asset purchases and the ability of the central bank to achieve a particular target has been subject to debate. The monetary transmission mechanism is of primary importance for understanding the effects of both the recent large scale asset purchases and of monetary policy more generally. The purpose of this paper is to propose a monetary transmission mechanism and to present empirical support for this mechanism. In particular, this paper suggests that monetary policy is transmitted through changes in the growth rate of transaction assets through both a direct and indirect effect. First, an increase in the growth rate of the monetary base, whether through lump sum transfers or open market operations, generates a real balance effect that increases real economic activity. Second, the indirect effect is through bank lending. Since bank loans are often a function of nominal income, expansionary monetary policy increases bank lending. Since economics agents are forward-looking and the the effects of monetary policy are persistent, monetary policy is transmitted through the expected future time path of the growth of transaction assets and nominal income. This characteristic is especially important in light of the policy recommendations of Sumner (2011, 2012) and Woodford (2012), in which the central bank attaches an explicit target for the level of nominal income to large-scale asset purchases.1
  • Topic: Economics, Markets, Monetary Policy, Federal Reserve
  • Political Geography: Global Focus
  • Author: Therese M. Vaughan, Mark A. Calabria
  • Publication Date: 05-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: Global Focus
  • Author: Neelanjan Sircar
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: This paper develops a theory on how voters form and change political preferences in democratic developing world contexts. In the developing world, where state institutions are often weak, voters tend to be more focused on the competence and capacity of parties and candidates to deliver benefits. Such information may be difficult to ascertain, so voters must glean information from how candidates conduct themselves during the electoral campaign. Voters use kinship networks to develop more accurate preferences by collectively reasoning through newly available information on candidates. In order to demonstrate these claims, this study analyzes data collected on political preferences and kinship networks in two villages just before and after the campaign period during the 2011 Assembly election in the Indian state of West Bengal. The paper finds very strong kinship network effects on changes in issue preferences and vote choice over the course of the campaign and explains the results through qualitative work and a series of network autoregressive statistical models. In sum, this paper demonstrates how voters develop independent preferences and implement political change, even in low information contexts with weak human capital.
  • Topic: Democratization, Politics, Self Determination, Elections
  • Political Geography: India
  • Author: Mark Schneider, Neelanjan Sircar
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The literature on decentralized public programs suggests that errors in the targeting of anti-poverty programs are rooted in the capture of these programs by local elites or local politicians. Consistent with the literature on moral economy in political science and experimental economics, we argue that voters in contexts of rural poverty prefer local leaders who target subsistence benefits to the poor. In a high information village context, where voters and leaders know each other, we argue that local elections lead to the selection of local leaders with pro-poor preferences over the distribution of these benefits. We show this with a novel theory of local politicians’ social preferences. We test our theory with unique data from a behavioral measure, conducted in the context of a lottery with a modest cash prize in rural India, that captures a scenario in which local leaders have full discretion and anonymity over allocation among members of their rural communities. We analyze our data using a novel estimation strategy that takes the characteristics of the pool of potential beneficiaries into account in decisions over allocation under a budget constraint. We find that local leaders have strong preferences for targeting the poor, and particularly those they believe supported them politically in the past. This article suggests that free and fair elections at the local level can powerfully encourage pro-poor targeting even in contexts of weak institutions and pervasive poverty. It also makes a fundamental contribution to research on distributive politics by challenging research in this area to demonstrate the effect of electoral strategies and other distortions on allocation relative to local leaders’ baseline distributive preferences.
  • Topic: Democratization, Economics, Politics, Political Theory, Elections
  • Political Geography: India
  • Author: James A. Dorn
  • Publication Date: 07-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: When the Federal Reserve was created in 1913, its powers were strictly limited and the United States was still on the gold standard. Today the Fed has virtually unlimited power and the dollar is a pure fiat money. A limited constitutional government calls for a rules-based, freemarket monetary system, not the topsy-turvy fiat dollar that now exists under central banking. This issue of the Cato Journal will examine the case for alternatives to central banking and the reforms needed to move toward free-market money
  • Author: Weiying Zhang
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: History and casual observations suggest that ideas and leadership are the two most important forces in all institutional changes. However, they have been absent or downplayed in conventional economic analysis of institutional changes. Conventional economics has exclusively focused on the notion of “interest” in explaining almost everything, from consumers' choices to public choices to institutional changes. IN particular, institutional changes have been modeled as a game of interests between different groups (such as the ruling and the ruled), with the assumption that there is a well-defined mapping from interests into outcomes.
  • Topic: Economics
  • Political Geography: China
  • Author: Randall G. Holcombe
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Political capitalism is an economic and political system in which the economic and political elite cooperate for their mutual benefit. The economic elite influence the government's economic policies to use regulation, government spending, and the design of the tax system to maintain their elite status in the economy. The political elite are then supported by the economic elite which helps the political elite maintain their status; an exchange relationship that benefits both the political and economic elite.
  • Topic: Economics, War
  • Political Geography: America
  • Author: George C. Bitros
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In the aftermath of the unprecedented 2008 financial crisis, researchers of macroeconomics, finance, and political economy are showing renewed interest in the old but very significant question: Are central banks in large reserve currency democracies—in particular, the U.S. Federal Reserve—prone to creating asset bubbles, and if so, how is it possible to prevent the misuse of the banks' discretionary powers?
  • Topic: Political Economy
  • Political Geography: United States, England
  • Author: Thomas H. Mayor
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Karl Marx formulated his ideas in the middle of the 19th century when much of Europe, particularly England, was well along in what is often referred to as the Industrial Revolution. The central Marxist idea was that those who had wealth would reap the benefit of this revolution and become ever more wealthy while those who lived from their labor alone would be relegated to a bare subsistence. In his view, capital accumulation and increases in productivity do not benefit those who work for a living. Allegedly, those who own the means of production (wealth) and supposedly perform no work, receive all the benefits.
  • Topic: Government
  • Political Geography: Europe, England
  • Author: Ryan H. Murphy
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Contemporary economic policy debates are dominated by concerns regarding the rise in inequality (Stiglitz 2012, Piketty 2014). Primarily, this has led to a focus in re-invigorating redistribution. For instance, Robert Shiller (2014) has recently argued for indexing top marginal tax rates to inequality and using the revenues to fund transfer payments. Secondarily, there are the longstanding objections to “neoliberalism” in general, which has encouraged globalization and the liberalization of markets. To the extent that liberal reforms have improved economic institutions, might today's inequality subsequently derail them?
  • Topic: Economics, Markets
  • Author: Richard E. Wagner
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Since the beginnings of the efforts of economist to give their discipline scientific grounding, economists have thought their theoretical efforts had relevance for addressing significant public issues. While the classical economists generally supported what Adam Smith described as the “system of natural liberty,” those economists also weighed in on numerous issues of public discussion. The tenor and substance of those efforts is set forth wonderfully by Lion Robbins (1952) and Warren Samuels (1966). While the analytical default setting of those economists was to support the system of natural liberty, they also recognized the value of sound public policy in supporting that stem. The classical economists thought that there could be publicly beneficial activities that the system. The classical economists thought that there could be publicly beneficial activities that the system of natural liberty would be unlikely to do well in providing. They also thought that there were activities provided through commercial transactions that could wreak significant effects on bystanders to those transactions. The amount of education acquired within a society was one such candidate (West 1965), with the care of the poor being another (Himmelfarb 1983). IN such matters as these, the classical economists engaged in strenuous debate and discussion that served as a forerunner to the development of welfare economics during the 20th century.
  • Topic: Government
  • Author: Philip K. Howard
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Phillip Howard is a lawyer nationally known for his best-selling books and extensive commentary on the dysfunctions of the American legal and political systems and the adverse effects those dysfunctions have on individual behavior and the overall workings of society.
  • Topic: Government
  • Political Geography: America
  • Author: Edmund S. Phelps
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In his most recent tome, Edmund Phelps, the 2006 Nobel Laureate in Economic Science, addresses a topic crucial to successful national capitalist systems: the dynamics of the innovation process. Phelps develops his thesis around three main themes: In part one, he explains the development of the modern economies as they form the core of early—19th century societies in the West; in part two, he explores the lure of socialism and corporatism as competing systems to modern capitalism; and, in part three, he reviews post-1960s evidence of decline in dynamism in Western capitalist countries.
  • Topic: Economics
  • Political Geography: United States, Europe
  • Author: Michael Teitelbaum
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In Washington, doomsday prophets tend to be effective motivational speakers. They successfully persuade the electorate that their cause is worthy and prompt Congress to take action. In his book Falling Behind? Boom, Bust, and the Global Race for Scientific Talent, Michael Teitelbaum takes on a particular brand of doomsday prophet: those who see impending shortages in the science and engineering workforce. Teitelbaum walks his readers through five postwar cycles of boom and bust in the science and engineering workforce, which eh argues have been driven to a large extend by political machinations set in motion by labor shortage claims (claims that have been almost universally rejected by economists studying the issue). The institutions that currently shape the science and engineering workforce are largely the product of policy responses to these booms and busts. As a result, Falling Behind? Is more than just a work of policy history. It is also a cogent analysis of contemporary R funding mechanisms, high-skill immigration policies, and PhD program structures.
  • Topic: Government
  • Political Geography: Washington, Soviet Union
  • Author: James L. Buckley
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: “The United States faces two major problems today,” writes James L. Buckley: “runaway spending that threatens to bankrupt us and a Congress that appears unable to deal with long-term problems of any consequence.” Contributing significantly to both, he argues, are the more than 1,100 federal grants-in-aid programs Congress has enacted—federal grants to state and local governments, constituting 17 percent of the federal budget, the third-largest spending category after entitlements and defense, with costs that have risen from $24.1 billion in 1970 to $640.8 billion in fiscal 2015. His “modest proposal”? Do away with them entirely, thereby saving Congress from itself while emancipating the states and empowering their people. If that sounds like a program for revising constitutional federalism, it is.
  • Topic: Government
  • Political Geography: United States
  • Author: Rebecca U. Thorpe
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In The American Warfare State, Reecca Thrope attempts to answer what she calls “the fundamental puzzle” of American politics: “Why a nation founded on a severe distrust of standing armies and centralized power developed and maintained the most powerful military in history.”
  • Topic: Economics
  • Political Geography: America
  • Author: Stephen J. K. Walters
  • Publication Date: 02-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The image of a boom town is commonly used to describe exceptional conditions through which a village suddenly becomes a city. Often such conditions are the discovery of mineral deposits that attracts industry and commerce. While in their booming condition, such towns are oases of societal flourishing relative to their preceding state. In Boom Towns, Stephen J.K. Walters, a professor of economics at Loyola University in Baltimore, explains that cities in general have the capacity perpetually to b forms of boom towns. Cities can serve as magnets to attract people and capital, thus promoting the human flourishing that has always been associated with cities at their best. It is different if cities are at their worst, as Walters explains in brining Jane Jacobs's Death and Life of Great American Cities into explanatory ambit. There are no natural obstacles to cities occupying the foreground of societal flourishing. There are obstacles to be sure, but these are man-made. Being man-made, they can also be overcome through human action, at least in principle even if doing so in practice might be difficult.
  • Topic: Government
  • Political Geography: America
  • Author: James A. Dorn
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The stability or instability of the market economy is an issue that has been all but ignored in macroeconomics for several decades. Within monetary economics, the distribution of income has been similarly ignored. The crisis of recent years tells us in no uncertain terms that we have to pay more attention to these two topics. Changes in financial regulation and in the conduct of monetary policy have not only played a very significant role in generating the financial crisis but have also been important in bringing about a large shift in the distribution of income over the last two or three decades
  • Author: Walker F. Todd
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Banks either are or should be fiduciaries holding the public’s funds as a public trust. Those who want to participate in the risktaking aspects of banking are shareholders (or should be shareholders). If the government is called upon to share the risks of banking, especially the risks of investment banking, then it should be a shareholder. As Edward J. Kane puts it, “For investment banker’s risk, there should be investment banker’s reward for the taxpayers.” And once the government is a shareholder, it owes a public duty to restrain the egregious risk taking and excess executive compensation in which banks seem to have wanted to engage for the last 30 years or so.
  • Author: Edwin Vieri Jr.
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In his Inaugural Address of 1933, Franklin D. Roosevelt warned his fellow Americans that “in our progress towards a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments, so that there will be an end to speculation with other people’s money; and there must be provision for an adequate but sound currency.” Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency—with the seizure of most Americans’ gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses in both public and private contracts (Vieira 2002:867–1235).
  • Author: Jerry L. Jordan
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Fruitful consideration of the role of gold in a market-based monetary system must be preceded by an understanding of why gold is not part of our government-based monetary system. I have set out my view on that issue elsewhere (Jordan 2011) and will not repeat it here. People whose views on money I greatly respect still advocate restoring gold backing to the Federal Reserve-issued U.S. dollar. During the Hearings of the U.S. Gold Commission in 1981–82, several witnesses advocated restoration of some linkage between Federal Reserve-issued dollar notes and gold.
  • Author: George Selgin
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: More than a half century ago, in October 1961, Milton Friedman’s “Real and Pseudo Gold Standards” appeared in the Journal of Law and Economics. In that article, Friedman argued that versions of the gold standard erected after 1914, if not some earlier ones, were “pseudo” gold standards, differing from “real” ones in dispensing with actual gold coins and allowing monetary authorities to sterilize international gold movements, instead of letting those movements automatically regulate national money stocks. Such pseudo gold standards, Friedman argued, amounted to particularly dangerous instances of government price-fixing, and as such ought to be anathema to believers in free markets.
  • Author: Judy Shelton
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: It has been more than six years since the global economy was put through the financial wringer and left hung out to dry. According to former Federal Reserve chairman Ben Bernanke, who presided over the debacle: “September and October of 2008 was the worst financial crisis in global history, including the Great Depression” (da Costa 2014). Given that Bernanke is a scholar on the global economic collapse of the 1930s, his assessment is particularly sobering. After all, a horrifying world war followed in its aftermath.
  • Author: Nathan Lewis
  • Publication Date: 07-2015
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Historically, there have been two basic frameworks by which a government organizes its monetary affairs. One of these—the Soft Money approach—we are quite familiar with today: a process by which a committee of government bureaucrats manages a floating fiat currency of some sort, on a day-to-day and ad hoc basis. The other format—the Hard Money approach—is typified by the Rule of Law, which is some definite and unchanging framework by which the currency is managed. Consequently, there is no need or role for a day-to-day human discretionary element, except perhaps in some of the particulars of the system’s execution.
  • Author: Alex Nowrasteh
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The fiscal impact of immigration-how immigrants and their descendants affect government budgets-is a widely debated and contentious issue. Economists overwhelmingly accept the economic gains of immigration, but are less certain about immigrants' impact on government budgets. Contention over this issue is fueled by the numerous methodologies and complexity of analysis that obscure the fiscal costs of immigration.
  • Topic: Civil Society, Economics, Immigration, Governance, Budget
  • Author: Alex Nowrasteh
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The fiscal impact of immigration—how immigrants and their descendants affect government budgets—is a widely debated and contentious issue. Economists overwhelmingly accept the economic gains of immigration, but are less certain about immigrants' impact on government budgets. Contention over this issue is fueled by the numerous methodologies and complexity of analysis that obscure the fiscal costs of immigration.
  • Topic: Demographics, Economics, Immigration, Budget
  • Author: Benjamin Powell, Alex Nowrasteh, J. R. Clark, Robert A. Lawson, Ryan H. Murphy
  • Publication Date: 05-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: The economics literature generally finds a positive, but small, gain in income to native-born populations from immigrants and potentially large gains in world incomes. But immigrants can also impact a recipient nation's institutions. A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long run prosperity. Although the literature on the impact of economic freedom on various social and economic outcomes is quite large, comparatively little work has tried to explain economic freedom as a dependent variable. This paper empirically examines how immigration impacts a region's policies and institutions. We find small but positive increases in institutional quality as a result of immigration.
  • Topic: Economics, Human Welfare, International Trade and Finance, Immigration
  • Author: Jeffrey Miron
  • Publication Date: 10-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: In November 2012, voters in the states of Colorado and Washington approved ballot initiatives that legalized marijuana for recreational purposes. Alaska, Oregon, and the District of Columbia are scheduled to consider similar measures in the fall of 2014, and other states may follow suit in the fall of 2016.
  • Topic: War on Drugs, Social Movement, Law
  • Political Geography: United States, Washington, Colombia
  • Author: Randal O'Toole
  • Publication Date: 10-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Under its “Greenlight Pinellas” proposal, the Pinellas Suncoast Transit Authority (PSTA), which serves Pinellas County, FL, wants to switch its major funding source from a property tax to a sales tax at a rate that will more than double its local tax revenues, and use the added money to build a 24-mile light-rail line and expand bus service. This proposal is extremely and unnecessarily expensive given that buses can provide a superior service to light rail, carrying more passengers more comfortably to more destinations at a far lower cost.
  • Topic: Infrastructure
  • Political Geography: United States
  • Author: Mark A. Calabria
  • Publication Date: 09-2014
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Empirical research on the causes of financial crises has grown in recent decades. Early work, such as that by Kaminsky and Reinhart, helped establish the link between asset prices and banking crises. While this initial research focused on equity prices, subsequent research expanded the analysis to include residential property prices. This subsequent research is briefly reviewed here. After establishing the link between residential property prices and banking crises, I discuss the role of various credit policies, both for their impact on property prices and for the stability of the financial system in the face of declining property prices. The role of specific loan characteristics, such as loan-to-value (LTV), will be discussed first, followed by the role of institutional leverage. Policy recommendations conclude.
  • Topic: Debt, Global Recession, Financial Crisis, Governance
  • Author: Geoffrey Black, D. Allan Dalton, Samia Islam, Aaron Batteen
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Over 50 years ago, in "The Problem of Social Cost," Ronald Coase (1960) attempted to reorient the economics profession's treatment of externalities. He wanted to draw economists' attention away from the world of pure competition as a policy standard and investigate the consequences of transaction costs and property rights for the operation of markets. In 1991, he was awarded the Nobel prize in economics "for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy" (Royal Swedish Academy of Sciences 1991). The Academy cited both his 1960 article and his 1937 article "The Nature of the Firm."
  • Topic: Economics
  • Political Geography: New York
  • Author: Jason E. Taylor, Jerry L. Taylor
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In September 2012, seven weeks before the presidential election—one in which top marginal tax rates were a major policy difference between the two major—party candidates-the Congressional Research Service (CRS) published a paper (Hungerford 2012) suggesting that there is no empirical evidence that top marginal tax rates impact U.S. economic growth. After all, top marginal tax rates were above 90 percent during the 1950s and early 1960s when the economy experienced rapid growth. Furthermore, marginal tax rate cuts in 2001 and 2003 were followed by the worst financial crisis since the Great Depression. The CRS study was widely reported in blogs, newspapers such as the New York Times, and The Atlantic magazine. It was portrayed as evidence refuting Republican candidate Mitt Romney's position that cutting the top marginal tax rate from 35 to 28 percent would spur economic growth and supporting Democratic President Barack Obama's position that top marginal tax rates could be raised to 39.6 percent with no cost to economic growth (Leonhart 2012, Thompson 2012).
  • Political Geography: United States
  • Author: John Merrifield, Barry W. Poulson
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Economic downturns expose unsustainable fiscal practices. Widespread fiscal crises create opportunities to compare policy options that address especially adverse circumstances, especially progrowth fiscal constraints that can stabilize state budgets over the business cycle. Our policy option assessments depart from the normal practice of assessing rules and policies independently. Our premise is that the fiscal policy mix determines its outcomes. We include dynamic scoring to provide a richer view of the policy interactions.
  • Topic: Economics
  • Political Geography: California
  • Author: Andrew Foy, Christopher Sciamanna, Mark Kozak, Edward J. Filippone
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Since 1970, the annual growth in U.S. health care spending per capita has been more than double the real growth in GDP per capita: 4.3 percent versus 2 percent. Over that same time period countries belonging to the Organization for Economic Cooperation and Development (OECD) averaged an annual growth rate of 3.8 percent in health care spending per capita compared to only a 2.1 percent annual growth in GDP per capita. Eight of 20 countries had higher average annual growth rates in health care spending per capita than the United States (White 2007). In light of the pronounced institutional differences among these countries in medical financing arrangements, the similarity in the rate of health care spending growth is striking. Therefore, any explanation that seeks to account for the tremendous cost growth in health care over the last several decades must hold true across all OECD countries.
  • Political Geography: United States
  • Author: Robert Krol
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Forecasts of future economic activity underlie any budget revenue projection. However, the forecasters in a government agency may face incentives or pressures that introduce forecast bias. For example, agency forecasters may be rewarded for a rosy growth forecast that allows politicians to avoid politically costly program cuts or tax increases. Similarly they may be penalized for underforecasting economic growth. Where a reward system is asymmetric, it would make sense to observe biased forecasts.
  • Topic: Government
  • Political Geography: California
  • Author: Paul Ballonoff
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Recently The Economist (2013a), a prominent journalistic advocate of strong policies to control CO2 emissions, expressed their puzzlement on the absence of warming over the last 15 years. They observed that this flat period of global average temperature occurred despite that CO2 emissions from human sources continued at an increased rate. The total human-produced CO2 emissions in that period of flat temperatures represent a quarter of all such emissions ever produced. The standard climate models, such as those used by the United Nation's International Panel on Climate Change (UN IPCC), anticipated that such massive CO2 increases should have caused continuing increases in average global temperatures. The Economist noted that observed global average temperature is now at the lowest end of the predicted range, and that if the present trend continues, the actual temperatures will soon be below even the lowest forecasts. Most recently, Fyfe, Gillett, and Zwiers (2013) demonstrated that the current climate models have experienced a systematic failure—a finding very similar to Knappenberger and Michaels (2013).
  • Topic: Environment, United Nations
  • Political Geography: United Nations
  • Author: Joshua R. Hendrickson
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: A bank is considered insolvent when its liabilities (deposits) exceed the value of its assets (reserves, loans, and securities). If assets exceed liabilities, any losses experienced on the asset side of the bank balance sheet result in a corresponding loss in the bank's capital. Insolvency occurs only in the event of losses exceeding the value of capital. All else equal, a bank with more capital is at lower risk of insolvency because the value of the bank's capital fluctuates with the value of assets.
  • Topic: Civil War
  • Political Geography: United Kingdom
  • Author: Thomas L. Hogan, William J. Luther
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Diamond-Dybvig (DD) model is often cited as a theoretical justification for government deposit insurance. In the model, rational agents find it in their interest to withdraw their bank deposits if they suspect other depositors plan to do likewise. When a sufficient number of agents are expected to liquidate their accounts, a bank run ensues. Guaranteeing deposits through a system of government administered deposit insurance removes the temptation to run on the bank and thereby precludes the need to ever use the deposit insurance.
  • Topic: Government
  • Author: Paul H. Rubin
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: A concept recently developed by scholars in psychology and biology is "pathological altruism." (Oakley 2013, Oakley et al. 2012). A pathological altruist is defined as "a person who sincerely engages in what he or she intends to be altruistic acts, but who harms the very person or group he or she is trying to help, often in unanticipated fashion; or harms others; or irrationally becomes a victim of his or her own altruistic actions." (Oakley, Knafo, and McGrath 2012: 4). We may relate this concept to Buchanan's Samaritan's dilemma: Buchanan's Samaritan is the altruist, and the pathology is that the recipient will be in the "no work" cell, so that the Samaritan becomes a victim of his own altruistic actions (Buchanan 1975).
  • Political Geography: Europe
  • Author: Trevor Burrus
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In Free Market Revolution: How Ayn Rand's Ideas Can End Big Government, Yaron Brook, executive director of the Ayn Rand Institute (ARI), and Don Watkins, a fellow at ARI, give a full-throated and spirited defense of Rand's arguments for freedom, self-actualization, and the just society. The book is a clear explanation of objectivism that weaves in timely and accurate policy discussions, such as the chapter on health care, that buttress the overall point.
  • Topic: Government
  • Political Geography: New York
  • Author: Mark A. Calabria
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The majority of books on the recent financial crisis tend to be written either by economics/finance experts or by journalists. While the journalistic accounts occasionally focus on political actors, it is usually in the manner of "bad people doing bad things" rather than with a theoretical framework. The economic accounts, with some exception, rarely incorporate the politics of finance. It is this vacuum that Political Bubbles attempts to fill.
  • Political Geography: America