Publishing Institution: The Cato Institute

401. A Dangerous Brew for Monetary Policy

Author:: Charles I. Plosser
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It is a pleasure to join you at Cato's 28th Annual Monetary Conference. In preparing today's remarks, I noted that this year's topic of how monetary policy should deal with asset prices was also discussed here in 2008. The speakers at that time expressed a wide variety of views and opinions. The fact that this important question continues to resurface here and at other prominent meetings in recent years suggests that a consensus has yet to emerge.
Topic:: Monetary Policy

402. Limits of Monetary Policy in Theory and Practice

Author:: Vincent R. Reinhart and Carmen M. Reinhart
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The Federal Reserve's conduct of monetary policy casts a spell over market participants, commentators, and academics. The pages of financial newspapers parse subtle differences among the comments of Fed officials and delve deeply into potentially multiple meanings of official statements. Academic discussions argue that the path of the policy rate may (as in Taylor 2009) or may not (as in Bernanke 2010, and Greenspan 2010) have fueled a home-price bubble in the United States.
Topic:: Monetary Policy
Political Geography:: United States

403. The Revived Bretton Woods System, Liquidity Creation, and Asset Price Bubbles

Author:: Harris Dellas and George S. Tavlas
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In this article, we argue that the present constellation of exchange rate arrangements among the major currencies has led to the creation of excessive global liquidity, which has contributed to asset price bubbles. Although the exchange rates of many of the major currencies—including the U.S. dollar, the euro, the yen, and the pound sterling—float against each other, the currencies of many Asian emerging market economies and oil-exporting economies are pegged to the dollar. Dooley, Folkerts-Landau, and Garber (2004a) labeled this system “Bretton Woods II” (BWII). The original Bretton Woods regime (BWI) lasted for about a quarter of a century. Dooley, Folkerts-Landau, and Garber (DFG) argue that the present regime, despite its large global imbalances, will also be sustainable.
Topic:: Oil
Political Geography:: United States

404. A Gold Standard with Free Banking Would Have Restrained the Boom and Bust

Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: President George W. Bush famously remarked in July 2008 that during the housing boom “Wall Street got drunk . . . and now it has a hangover.” It was the Federal Reserve that spiked the punchbowl. The Fed sowed the seeds for the bust of 2007–08 by overexpanding credit, keeping interest rates too low for too long. The Fed made these mistakes despite our having been assured that it had learned from past errors and that the art of central banking had been all but perfected. A commodity standard with free banking, and no central bank to distort the financial system, would have avoided such a boom-and-bust credit cycle.

405. U.S. Decapitalization, Easy Money, and Asset Price Cycles

Author:: Kevin Dowd and Martin Hutchinson
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In Matthew 25: 14–30, Jesus recounts the Parable of the Talents, the story of how the master goes away and leaves each of three servants with sums of money to look after in his absence. He then returns and holds them to account. The first two have invested wisely and give the master a good return, and he rewards them. The third, however, is a wicked servant who couldn't be bothered even to put the money in the bank where it could earn interest. Instead, he simply buried the money and gave his master a zero return. He is punished and thrown into the darkness where there is weeping and wailing and gnashing of teeth.
Political Geography:: United States

406. Financial Crises: Prevention, Correction, and Monetary Policy

Author:: Manuel Sánchez
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The financial crisis that surfaced in 2007 has stressed the need to identify the ultimate sources of the incentives that were behind the preceding credit and housing bubbles. To lower the likelihood of future financial collapses, prudent economic policies as well as an adequate regulatory and supervisory framework for financial institutions are required. Monetary policy, in turn, should be directed toward price stability, which is a central bank's best contribution not only to long-term economic growth, but also to financial stability.
Topic:: Disaster Relief and Monetary Policy

407. Three Narratives about the Financial Crisis

Author:: Peter J. Wallison
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The most important lesson we can learn from the financial crisis is what caused it. Even though the Dodd-Frank Act (DFA) has been signed into law, this is still an important question. If we do not attribute the crisis to the right cause, we could well stumble into another crisis in the future; and if the DFA was directed at the wrong cause, we should consider its repeal. There are several competing narratives. One of them will eventually be accepted, and will determine how the great financial crisis of 2008 is interpreted, and thus how it affects public policy in the future.
Topic:: Financial Crisis

408. Supply: A Tale of Two Bubbles

Author:: Mark A. Calabria
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: To the extent that monetary policy influences asset prices, it does so via the demand for assets, by changing the borrowing costs to purchase assets, or via supply, where movements in interest rates can make investment in assets look more or less attractive. Fiscal policy interventions can also contribute to bubbles by changing the cost of acquiring specific assets. Most discussions of asset bubbles, particularly those involving the role of monetary policy, focus on demandside factors. This article examines the role of supply-side factors in the recent booms in the U.S. housing market and dot-com stocks. The importance of supply constraints in each market is discussed. Policy implications are then presented.
Topic:: Monetary Policy
Political Geography:: United States

409. Incentive-Robust Financial Reform

Author:: Charles W. Calomiris
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Will Rogers, commenting on the Depression, famously quipped: “If stupidity got us into this mess, why can't it get us out?” Rogers's rhetorical question has an obvious answer: persistent stupidity fails to recognize prior errors and, therefore, does not correct them. For three decades, many financial economists have been arguing that there are deep flaws in the financial policies of the U.S. government that account for the systemic fragility of our financial system, especially the government's subsidization of risk in housing finance and its ineffective approach to prudential banking regulation. To avoid continuing to make the same mistakes, it would be helpful to reflect on the history of crises and government policy over the past three decades.
Political Geography:: United States

410. Preventing Bubbles: Regulation versus Monetary Policy

Author:: David Malpass
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Over the years, there has been a lot to consider in the Federal Reserve's choices of monetary policy and their relationship to bubbles. My conclusion is that mistaken U.S. monetary policy, usually related to the Fed's indifference to the value of the dollar, has repeatedly caused harmful asset bubbles in the United States and abroad. Policy is again at risk with the Fed's imposition of near-zero interest rates and its decision to conduct large-scale asset purchases (termed “quantitative easing”). Regulatory policy has often been ineffective at identifying or addressing asset bubbles, especially those caused by Fed policy. The solution is a parallel track to improve monetary policy so that it provides a more stable dollar and fewer asset bubbles; and to strengthen regulatory policy so that it provides a more reliable base for growth-creating free markets.
Topic:: Monetary Policy
Political Geography:: United States

411. Honest Money

Author:: Jerry L. Jordan
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: This article addresses some of the recent proposals for the conduct of monetary policies in the post-bubble environment. Advocacy of higher inflation targets is analyzed, and the challenge of maintaining monetary discipline in the face of massive fiscal deficits and mounting government debts is presented. Proposals for reforms of monetary arrangements must be based on consensus regarding the objectives of such reforms. The article concludes with some suggestions for near- and intermediate-term changes to present arrangements, as well as ideas for longer-term reforms.
Topic:: Government and Reform
Political Geography:: Canada

412. Milton Friedman's 1971 Feasibility Paper

Author:: Leo Melamed
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The story is fairly well known. In 1971, as chairman of the Chicago Mercantile Exchange, I had an idea: a futures market in foreign currency. It may sound so obvious today, but at the time the idea was revolutionary. I was acutely aware that futures markets until then were primarily the province of agriculture and—as many claimed—might not be applicable to instruments of finance. Not being an economist, the idea was in need of validation. There was only one person in the world that could satisfy this requisite for me. We went to Milton Friedman. We met for breakfast at the Waldorf Astoria in New York. By then he was already a living legend and I was quite nervous. I asked the great man not to laugh and to tell me whether the idea was “off the wall.” Upon hearing him emphatically respond that the idea was “wonderful,” I had the temerity to ask that he put his answer in writing. He agreed to write a feasibility paper on “The Need for Futures Markets in Currencies,” for the modest stipend of $7,500. It turned out to be a helluva trade.
Topic:: Economics
Political Geography:: New York and Chicago

413. The Need for Futures Markets in Currencies

Author:: Milton Friedman
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Under the Bretton Woods system, the central banks of the world undertook to keep the exchange rates of their currencies in terms of the dollar within _1 percent of the par value as determined by the official values of gold registered with the International Monetary Fund. In practice, the central banks generally kept the margins even narrower: _1⁄2 of 1 percent or _3⁄4 of 1 percent. So long as they had confidence that these limits would be maintained indefinitely, persons engaged in foreign trade were subject to negligible risk from fluctuations in exchange rates. Even so, large traders with sharp pencils found it desirable to hedge any future transactions by buying foreign currencies forward to meet commitments coming due or selling foreign currencies forward to match scheduled receipts. These forward transactions were handled by the large commercial banks, often with the active participation of foreign central banks in the forward market.
Political Geography:: London

414. Friedman and Samuelson on the Business Cycle

Author:: J. Daniel Hammond
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Chicago School economists have come in for criticism since the financial crisis and so-called Great Recession began in 2007. Commentators have blamed recent problems on a laissez-faire faith in the efficacy of markets and simple rules for business-cycle policy—ideas associated with economics as taught and practiced at the University of Chicago. Events over the past four years, we are told, demonstrate the need for a restoration of Keynesian thinking about business cycles and activist government policies to keep markets from failing. However, there is another aspect of Chicago School economics that is commonly overlooked. This is the conviction that economists' understanding of the business cycle is meager in light of the knowledge necessary for activist countercyclical policy to be effective. From this comes the Chicago School concern that economists and policymakers not attempt to do something beyond their capability. Overreaching can make the problems worse.
Topic:: Economics and Financial Crisis
Political Geography:: Chicago

415. Peddling Protectionism: Smoot-Hawley and the Great Depression

Author:: Daniel Griswold
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Let me preface this review with a confession: As an advocate of free trade, I love to link the 1930 Smoot-Hawley tariff bill with the Great Depression at every opportunity. More than 80 years after its passage, the bill still evokes negative feelings about protectionism. After reading Douglas Irwin's Peddling Protectionism: Smoot- Hawley and the Great Depression, I can see I need to curb my enthusiasm. Irwin does not defend the bill, far from it. He concludes that it failed to achieve its objectives and that it did, in an incremental way, make the Great Depression worse. But in the careful language of the professional economist and historian that he is, Irwin documents in rich and often colorful detail that the most infamous trade bill in American history had less impact than either its advocates or its opponents understood at the time or understand today. Even so, the story of Smoot-Hawley offers valuable lessons for today as our politicians seek to craft U.S. trade policy in the 21st century. Irwin is superbly qualified to write the definitive history of what was officially the Trade Act of 1930. A professor of economics at Dartmouth College, he has authored Against the Tide: An Intellectual History of Free Trade (1996), and Free Trade under Fire (3rd ed., 2009).
Topic:: Economics
Political Geography:: United States

416. Robust Political Economy: Classical Liberalism and the Future of Public Policy

Author:: Richard L. Gordon
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Pennington undertakes a needed effort to provide a systematic, analytic critique of recent efforts to discredit what he terms “classical liberal economics.” His is effectively the standard but hard-to-sell proposition that prescient impartial counselors—Plato's philosopher kings—have failed to emerge from the development of modern knowledge. In particular, Pennington makes good use of Hayek's radical contrast between the competitive testing of concepts in a spontaneous market order and the construction of solutions by government monopolies. As Pennington's conclusions nicely summarize, skepticism of limited government is high and fostered by those who are seeking rents from intervention. Thus, ideas that committed libertarians see as obviously absurd need systematic debunking for a broader audience. Pennington, therefore, pretends that he is treating serious arguments and confronts them respectfully.
Topic:: Government and Political Economy
Political Geography:: United States

417. America Identified: Biometric Technology and Society

Author:: Jim Harper
Publication Date:: 09-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Lisa Nelson's America Identified: Biometric Technology and Society is a slow and careful examination of a formidably broad landscape—at least until she springs to her conclusions. Among them: “Individual liberty must be reconceptualized to account for the use of data by individuals for communication, transactions, and networking.” It's a scholar's way of saying, “Move over, sovereign individual. Experts are going to handle this.”
Topic:: Foreign Policy
Political Geography:: America

418. Herbert Hoover: Father of the New Deal

Author:: Steven Horwitz
Publication Date:: 09-2011
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation-all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington ... we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."
Topic:: Economics, Markets, Political Economy, Financial Crisis, and Governance
Political Geography:: United States and Washington

419. Publication Practices for Transparent Government

Author:: Jim Harper
Publication Date:: 09-2011
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: Government transparency is a widely agreed upon goal, but progress on achieving it has been very limited. Transparency promises from political leaders such as President Barack Obama and House Speaker John Boehner have not produced a burst of information that informs stronger public oversight of government. One reason for this is the absence of specifically prescribed data practices that will foster transparency.
Topic:: Democratization, Political Economy, Politics, Communications, and Governance
Political Geography:: United States

420. Social Security's Financial Outlook and Reforms: An Independent Evaluation

Author:: Jagadeesh Gokhale
Publication Date:: 10-2011
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Social Security is often described as a "foundational" element of the nation's social safety net. Almost all Americans are directly affected by the program and many millions primarily depend on its benefits for supporting themselves during retirement. But the program's financial condition has worsened considerably since the last recession, which began in 2007. In that year, the Social Security trustees estimated that the program's trust fund would be exhausted by 2042. The trustees' annual report for 2011 brings the trust fund exhaustion date forward to 2038. Indeed, the programs revenues fell short of its benefit expenditures in 2010 and it appears unlikely that significant surpluses will emerge again under the program's current rules. If the program's finances continue to worsen at this rate, it won't be long before the debate on reforming the program assumes an urgency and intensity similar to that during 1982-83, when imminent insolvency forced lawmakers to implement payroll tax increases and scale back its benefits.
Topic:: Economics, Government, and Human Welfare
Political Geography:: America and Ethiopia

421. The New "Supercommittee": An "Optimistic" View

Author:: Jared Lobdell
Publication Date:: 11-2011
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: An October New York Times story remarked that “with just five weeks until its deadline, a secretive Congressional committee seeking ways to cut the federal deficit is far from a consensus, and party leaders may need to step in if they want to ensure agreement, say people involved in the panel's work.” We have this “supercommittee” of twelve members of Congress, ostensibly for the purpose of cutting a minimum $1.2 trillion from our deficit, chosen by four appointers, none agreeing with any other on exactly what ought to be done, representing mostly diametrically opposing wings of two parties with irreconcilable differences.
Topic:: Debt, Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:: United States

422. The Case for Gridlock

Author:: Marcus E. Ethridge
Publication Date:: 01-2011
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: In the wake of the 2010 elections, President Obama declared that voters did not give a mandate to gridlock. His statement reflects over a century of Progressive hostility to the inefficient and slow system of government created by the American Framers. Convinced that the government created by the Constitution frustrates their goals, Progressives have long sought ways around its checks and balances. Perhaps the most important of their methods is delegating power to administrative agencies, an arrangement that greatly transformed U.S. government during and after the New Deal. For generations, Progressives have supported the false premise that administrative action in the hands of experts will realize the public interest more effectively than the constitutional system and its multiple vetoes over policy changes. The political effect of empowering the administrative state has been quite different: it fosters policies that reflect the interests of those with well organized power. A large and growing body of evidence makes it clear that the public interest is most secure when governmental institutions are inefficient decisionmakers. An arrangement that brings diverse interests into a complex, sluggish decisionmaking process is generally unattractive to special interests. Gridlock also neutralizes some political benefits that producer groups and other well-heeled interests inherently enjoy. By fostering gridlock, the U.S. Constitution increases the likelihood that policies will reflect broad, unorganized interests instead of the interests of narrow, organized groups.
Topic:: Democratization, Government, Politics, Power Politics, and Governance
Political Geography:: United States and America

423. Markets and Morality

Author:: Dwight R. Lee and J.R. Clark
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Adam Smith was a moral philosopher, and economics clearly began as a discipline concerned with both normative and positive considerations. Over time, however, as economics became more “scientific,” positive analysis of the consequences of economic activity increasingly crowded out normative analysis of the morality of that activity. It is now common for economists to boast that economics is “value free.”

424. Envisioning a Free Market in Health Care

Author:: D. Eric Schansberg
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Although President Obama and the Democratic Congress were able to pass landmark health legislation, their efforts to reform health care ran into predictable political roadblocks. In a severe recession, taxing business and labor is obviously not helpful to economic recovery. Moreover, an array of overreaching sales pitches—claims of additional coverage without additional costs or rationing—piqued the cynicism of the general public. Given historical spending and budget deficits, an expensive new federal program is difficult to swallow. Mandates and restrictions on health insurance can only exacerbate the problem of rapidly rising health care costs (Tanner 2010).

425. Why Some States Fail: The Role of Culture?

Author:: Claudio D. Shikida, Ari Francisco de Araujo Jr, and Pedro H.C. Sant'Anna
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: There are many studies on the relationship between economic development and institutions. Institutions can be classified as formal or informal. This article emphasizes the importance of the relationship between culture (informal institutions) and the quality of public goods supplied by the government, using a measure of state failure: the Failed States Index. The results suggest that culture is more important than formal institutions in explaining differences in the degree to which states fail.

426. Giving Up on Foreign Aid?

Author:: Gustav Ranis
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Andrei Shleifer (2009) and David Skarbek and Peter Leeson (2009) offer devastating critiques of foreign aid. Following Peter Bauer's and, more recently, William Easterly's lead, they assert that if aid has any impact at all it is most likely to do harm. The only exception, offered by Skarbek and Leeson, is that it may do some good at the micro-project level. I would like to raise what is rapidly becoming a contrarian point of view.

427. What Aid Can't Do: Reply to Ranis

Author:: David B. Skarbek and Peter T. Leeson
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Gustav Ranis addresses our recent article in this journal where we argued that foreign aid is unable to solve the economic problem and thus unable to make poor countries rich (Skarbek and Leeson 2009). The following quotations from his article summarize his main objections to our argument.

428. An Austrian Rehabilitation of the Phillips Curve

Author:: Robert F. Mulligan
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: William Niskanen (2002) estimated a Phillips curve for the United States using annual 1960–2000 data. By adding one-yearlagged terms in unemployment and inflation, he was able to show that this familiar equation is misspecified. In his improved specification, Niskanen found that the immediate impact of inflation is to reduce unemployment, confirming the traditional understanding of the Phillips-curve relationship, but also finding that after an interval as short as one year inflation has generally been followed by increased unemployment. Though Niskanen was perhaps unaware of it, his results lend strong support to the Austrian model of the business cycle. In that model, credit expansion results in a temporary but unsustainable expansion. Unemployment is lowered in the short run, but once the policy-induced malinvestment is recognized, total output and income will be permanently reduced, and unemployment will increase.

429. Deposit Insurance and Banking Stability

Author:: Kam Hon Chu
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Many financial systems were plagued by bank runs or subject to the risk of contagion when the recent financial tsunami unfolded. The runs on the U.S. banks Countrywide and IndyMac, Britain's Northern Rock, and Hong Kong's Bank of East Asia, among others, occurred about a few years ago, but they are still vivid to us. These runs were, of course, the symptoms rather than the root cause of the financial tsunami. In response to the most severe systemic global financial crisis since the Great Depression, policymakers and regulators in many countries have implemented various drastic regulatory measures to rescue the financial systems from meltdowns and to avert deep economic downturns. Such measures vary from country to country, but generally speaking they include governments' takeovers of banks or capital injections, quantitative easing techniques, provisions of liquidity by lax lender-of-last-resort lending, lower discount rates, and more generous deposit insurance.
Political Geography:: United States, Asia, and Hong Kong

430. An Analysis of the Financial Services Bailout Vote

Author:: Jim F. Couch, Mark D. Foster, Keith Malone, and David L. Black
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Washington's remedy to the financial problems that began in 2008 was the Troubled Asset Relief Program (TARP)—the so called bailout of the banking system. Whatever its merits, it was, for the most part, unpopular with the American public. Lawmakers, fearful that the economy might actually collapse without some action, were likewise fearful that action—in the form of a payout to the Wall Street financiers—would prove to be harmful to them at the polls. Thus, politicians sought to assure the public that their vote on the measure would reflect Main Street virtues, not Wall Street greed.
Political Geography:: America

431. Restructuring the U.S. Postal Service

Author:: Robert Carbaugh and Thomas Tenerelli
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: From 1775 when Benjamin Franklin was appointed as the first postmaster general of the United States, the agency known as the U.S. Postal Service (USPS) has grown to become an institution that delivers about half of the world's mail in rain, snow, and the dark of night. Employing about 656,000 workers and 260,000 vehicles and operating about 38,000 facilities nationwide, the USPS is the second-largest civilian employer in the United States, after WalMart. If the USPS was a private sector company, it would rank 28th in the 2009 Fortune 500 (U.S. Postal Service 2010).
Political Geography:: United States

432. This Time Is Different: Eight Centuries of Financial Folly

Author:: Kurt Schuler
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Carmen Reinhart and Kenneth Rogoff's wide-ranging, quantitative study of ﬁnancial crises is a landmark work. Reinhart and Rogoff have taken advantage of the advances of the last 20 years in economic history, personal computers, and the Internet to assemble a large data set covering most countries of any importance for the world economy. They are the ﬁrst researchers to base their generalizations about ﬁnancial crises on data that combine geographic breadth with great historical depth.

433. Afghanistan: A Cultural and Political History

Author:: Malou Innocent
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In the Western mind, Afghanistan conjures up a rugged land of fractious, tribal people. From Alexander the Great and Genghis Khan, to Tamerlane and Mughal emperor Babur, virtually no conqueror has escaped “the graveyard of empires” unscathed. Even modern, industrial empires—the British and the Russian— suffered heavy losses. Why have foreign attempts to conquer Afghanistan proved so ineffective? Why did the U.S. invasion fail to bring stability?
Political Geography:: Afghanistan and United States

434. The Ideological Origins of American Federalism

Author:: Ilya Somin
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: As has often been the case in American history, federalism is once again a major focus of political debate. Numerous recent political conflicts focus at least in part on the constitutional balance of power between the states and the central government. The lawsuits challenging the recently passed Obama health care plan, the federal bailout of state governments during the current economic crisis, and the conflicts over social issues such as medical marijuana and assisted suicide are just a few of the more prominent examples.
Topic:: Government
Political Geography:: America

435. The Economics of Microfinance

Author:: Bryan Barnett
Publication Date:: 12-2011
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It is one of the sad facts of recent human history that the economic prosperity enjoyed by so many remains unknown to most of the rest. The causes of poverty have long been debated and much has been spent in the effort to ameliorate it. Reliable estimates suggest as much as $2.3 trillion has been spent over the last several decades, most of it in the form of sponsored aid programs conceived and pursued by governments and large foundations in developed countries. Despite this investment, however, poverty remains widespread and has worsened in many places, especially in Africa. These basic facts now fuel a vigorous debate over the scale and ultimate value of traditional aid programs and a search for more effective solutions.
Topic:: Government
Political Geography:: Africa

436. Fannie, Freddie, and the Subprime Mortgage Market

Author:: Mark A. Calabria
Publication Date:: 03-2011
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: The recent financial crisis was characterized by losses in nearly every type of investment vehicle. Yet no product has attracted as much attention as the subprime mortgage.
Topic:: Economics, Government, Markets, and Financial Crisis
Political Geography:: United States

437. Estimating ObamaCare's Effect on State Medicaid Expenditure Growth

Author:: Jagadeesh Gokhale
Publication Date:: 01-2011
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Unless repeal attempts succeed, the Patient Protection and Affordable Care Act of 2010 (ObamaCare) promises to increase state government obligations on account of Medicaid by expanding Medicaid eligibility and introducing an individual health insurance mandate for all US citizens and legal permanent residents. Once ObamaCare becomes fully effective in 2014, the cost of newly eligible Medicaid enrollees will be almost fully covered by the federal government through 2019, with federal financial support expected to be extended thereafter. But ObamaCare provides states with zero additional federal financial support for new enrollees among those eligible for Medicaid under the old laws. That makes increased state Medicaid costs from higher enrollments by "old-eligibles" virtually certain as they enroll into Medicaid to comply with the mandate to purchase health insurance. This study estimates and compares potential increases in Medicaid costs from ObamaCare for the five most populous states: California, Florida, Illinois, New York, and Texas.
Topic:: Government, Health, Markets, and Health Care Policy
Political Geography:: United States, New York, California, and Florida

438. Behind the Curtain: Assessing the Case for National Curriculum Standards

Author:: Neal McCluskey
Publication Date:: 02-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: The argument for national curriculum standards sounds simple: set high standards, make all schools meet them, and watch American students achieve at high levels. It is straightforward and compelling, and it is driving a sea change in American education policy.
Topic:: Development, Education, and Culture
Political Geography:: United States and America

439. Lawless Policy: TARP as Congressional Failure

Author:: John Samples
Publication Date:: 02-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: The U.S. Constitution vests all the “legislative powers” it grants in Congress. The Supreme Court allows Congress to delegate some authority to executive officials provided an “intelligible principle” guides such transfers. Congress quickly wrote and enacted the Emergency Economic Stabilization Act of 2008 in response to a financial crisis. The law authorized the secretary of the Treasury to spend up to $700 billion purchasing troubled mortgage assets or any financial instrument in order to attain 13 different goals. Most of these goals lacked any concrete meaning, and Congress did not establish any priorities among them. As a result, Congress lost control of the implementation of the law and unconstitutionally delegated its powers to the Treasury secretary. Congress also failed in the case of EESA to meet its constitutional obligations to deliberate, to check the other branches of government, or to be accountable to the American people. The implementation of EESA showed Congress to be largely irrelevant to policymaking by the Treasury secretary. These failures of Congress indicate that the current Supreme Court doctrine validating delegation of legislative powers should be revised to protect the rule of law and separation of powers.
Topic:: Economics, Monetary Policy, and Financial Crisis
Political Geography:: United States and America

440. Globalization: Curse or Cure? Policies to Harness Global Economic Integration to Solve Our Economic Challenge

Author:: Jagadeesh Gokhale
Publication Date:: 02-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Globalization holds tremendous promise to improve human welfare but can also cause conflicts and crises as witnessed during 2007–09. How will competition for resources, employment, and growth shape economic policies among developed nations as they attempt to maintain productivity growth, social protections, and extensive political and cultural freedoms?
Topic:: Development, Economics, Globalization, and International Trade and Finance
Political Geography:: Global Focus

441. Scientific Misconduct: The Manipulation of Evidence for Political Advocacy in Health Care and Climate Policy

Author:: George Avery
Publication Date:: 02-2010
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: Science is increasingly being manipulated by those who try to use it to justify political choices based on their ethical preferences and who are willing to suppress evidence of conflict between those preferences and the underlying reality. This problem is clearly seen in two policy domains, health care and climate policy.
Topic:: Climate Change, Health, Politics, and Science and Technology

442. Editor's Note

Author:: James A. Dorn
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: This special issue of the Cato Journal was made possible by a generous grant from the Arthur N. Rupe Foundation . The question posed in this issue—Are Unions Good for America?—has both normative and positive aspects. Normatively, if one takes freedom as a fundamental principle, then compulsory unionism cannot be justified in a free society; it violates the rights of both workers and employers. Under current U.S. labor law, workers are often compelled to join unions and employers are compelled to negotiate “in good faith.” Public sector unions are even more onerous than private sector unions; they limit consumer choices and impose heavy tax burdens.
Political Geography:: United States and America

443. Unions, Economic Freedom, and Growth

Author:: Randall G. Holcombe and James D. Gwartney
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The freedom to enter into contracts and to direct the use of economic resources one owns are essential to the operation of a market economy. Allowing employees to form unions to bargain collectively over wages and employment conditions is consistent with economic freedom, and any government intervention preventing unionization would be a violation of economic freedom. Nevertheless, American labor law, especially since the 1930s, has altered the terms and conditions under which unions collectively bargain to heavily favor unions over the firms that hire union labor. Labor law has given unions the power to dictate to employees collective bargaining conditions, and has deprived employees of the right to bargain for themselves regarding their conditions of employment. While unions and economic freedom are conceptually compatible, labor law in the United States, and throughout the world, has restricted the freedom of contract between employees and employers.
Topic:: Economics
Political Geography:: United States and America

444. Unions, the Rule of Law, and Political Rent Seeking

Author:: Armand Thieblot
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Under the Obama administration, the influence and involvement of trade unions in government policy decisions has surged to unprecedented levels. Some of the more egregious examples include the proposed Employee Free Choice Act, which abolishes the secret ballot among workers deciding on union representation and imposes forced interest arbitration of contract disputes; the selective protection of union healthcare benefits from proposed “reform” legislation; the awarding of assets seized from major automotive companies to the United Automobile Workers; and the involvement of union personnel, especially members of the Service Employees International Union, in electioneering efforts and counter-demonstrations on behalf of the Democratic party. That all of this has occurred within less than a year is especially troublesome. What makes it more so is the well-established pattern, on the part of unions, to disregard and disrespect the rule of law.
Topic:: Government

445. Why Project Labor Agreements Are Not in the Public Interest

Author:: David G. Tuerck
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Project labor agreements (PLAs) are agreements between owners of construction projects and construction unions, under which firms retained to work on a construction project must enter into collective bargaining with the unions, hire workers through union hiring halls, and pay union wages and benefits. Contractors must operate, in effect, as union contractors, whether they ordinarily use union labor or not. Workers must usually pay union dues whether they belong to a union or not.
Topic:: Labor Issues

446. Unions and Discrimination

Author:: Paul Moreno
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The claim that organized labor has been a force for racial egalitarianism can only be called a myth. It is one of the many myths that pro-union historians have perpetuated—similar to those, for example, that unorganized workers suffered from an “inequality of bar- gaining power” (Reynolds 1991), that strikes are conflicts between employers and employees rather than between different groups of employees, or that violence was more often employed against than by unions (Thieblot and Haggard 1983). Perhaps the greatest myth of all is that organized labor is good for workers generally. In fact, unions transfer income from the unorganized to the organized, and depress total income to such a degree that even organized workers are poorer (Vedder and Gallaway 2002).

447. Public Sector Unions and the Rising Costs of Employee Compensation

Author:: Chris Edwards
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Public sector compensation is becoming a high-profile policy issue. While private sector wages and benefits have stagnated during the recession, many governments continue to increase compensation for public sector workers. At the same time, there are growing concerns about huge underfunding in public sector retirement plans across the nation.
Political Geography:: United States

448. Unions and the Decline of U.S. Cities

Author:: Stephen J. K. Walters
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The usual suspects in the tragic demise of many of America's core cities are well known. For decades, scholars, politicians, and pundits have condemned the racism that led whites to flee diverse urban populations after World War II, sneered at Americans' vulgar affection for cars and expansive lawns, criticized policies that encouraged us to indulge these tastes, and blamed capitalist greed and unwhole- some technological change for the deindustrialization that has wrecked urban labor markets.
Topic:: War
Political Geography:: United States and America

449. Prevailing Wage Laws: Public Interest or Special Interest Legislation?

Author:: George C. Leef
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The public policy of the United States is broadly in favor of competition. Our antitrust laws are premised on the idea that in the absence of such legislation private interests would seek to create monopolies, fix prices, restrain trade, and stifle competition. Moreover, the federal government, as well as the states and municipalities, has laws mandating competitive bidding on government contracts to guard the public against "sweetheart deals" that squander tax dollars. Open competition, in fact, is usually the undoing of those conspiracies against the public that Adam Smith saw as so prevalent.
Political Geography:: United States

450. The Effects of Teachers Unions on American Education

Author:: Andrew J. Coulson
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Public school employee unions are politically partisan and polarizing institutions. Of the National Education Association's $30 million in federal campaign contributions since 1990, 93 percent has gone to Democrats or the Democratic Party. Of the $26 million in federal campaign contributions by the American Federation of Teachers, 99 percent has gone to Democrats or the Democratic Party (Center for Responsive Politics 2009). Perhaps not entirely coincidentally, conservatives and Republicans have often accused these unions of simultaneously raising the cost and lowering the quality of American public schools. Many advocates of charter schools, vouchers, and education tax credits have cited union political influence as the greatest impediment to their chosen reforms. But in academic circles, scholars have sometimes disagreed on the unions' impact on wages and educational productivity. The purpose of the present review is to summarize, and attempt to reconcile, the empirical research on the actual impact teachers unions have on American education.
Topic:: Education and Reform
Political Geography:: America

451. Right-to-Work Laws: Liberty, Prosperity, and Quality of Life

Author:: Richard Vedder
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The most essential ingredient embodied in the liberty championed by the classical liberal writers of the Enlightenment and beyond is individual choice and right of expression—the right of persons to say what they think, decide for themselves what groups that want to join, what religion that want to profess, what person they want to marry, what goods they want to buy or sell, and what persons they want to represent them where necessity requires collective decision making. One important economic dimension of individual liberty is the right to sell one's labor services without attenuation—that is, without limits on the terms of the agreement (e.g., wage rates and hours of work), or who will represent the worker in reaching those terms.
Political Geography:: United States

452. Unions, Protectionism, and U.S. Competitiveness

Author:: Daniel Griswold
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In the past three decades, labor union leaders have emerged as among the chief critics of trade liberalization, while the economic evidence has grown that labor unions compromise the ability of American companies to compete in global markets.
Political Geography:: United States and America

453. Unions, the High-Wage Doctrine, and Employment

Author:: Lowell E. Gallaway
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In the more than 200 years in which formal organizations of workers (labor unions) have existed in the United States, there have been three distinct eras of policy toward them. Initially, in the late 18th and early 19th century, they were regarded as associations that came under the purview of the English common-law doctrine of conspiracy— that is, their very existence could be considered illegal, regardless of the objectives of the group.
Political Geography:: United States

454. Toward a Free-Market Union Law

Author:: Charles W. Baird
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: F. A. Hayek and W. H. Hutt wrote extensively about the malign economic and social effects of the special privileges and immunities granted by governments to labor unions, but they wrote much less about what a free-market unionism might look like. They argued that all legislation that has conferred coercive powers on unions should be repealed, but they did not propose any specific free-market union legislation to take its place. Perhaps they thought that if all offending legislation were repealed there would be no need for any union-specific legislation. The common law of property, contract, and tort would suffice. Nevertheless, it is difficult in American politics to replace something with nothing. Therefore, I think it is useful, albeit constructivist, to propose a free-market alternative to the Norris- LaGuardia Act of 1932 (NLA) and the National Labor Relations Act of 1935 as amended in 1947 (NLRA). Perhaps the chief value of such a proposal is to make explicit what the ordinary law of property, contract and tort implies for the labor market and the role of unions therein. New Zealand's 1991 Employment Contracts Act (ECA) is a good, but imperfect, guide in this endeavor.
Topic:: Law
Political Geography:: America and New Zealand

455. In Fed We Trust: Ben Bernanke's War on the Great Panic

Author:: William Poole
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: David Wessel is a fine journalist; In Fed We Trust is a fine book. It belongs on the shelf of every student of the 2007–09 financial crisis. It is, as well, a good read for recreational observers of the economic scene. Wessel focuses on Fed Chairman Ben S. Bernanke, but he discusses the role of all the other key players as well. The biographical information on Bernanke is interesting, as are Wessel's comments on the policy approaches and personalities of the other policymakers.
Topic:: War and Financial Crisis

456. Unchecked and Unbalanced: How the Discrepancy between Knowledge and Power Caused the Financial Crisis and Threatens Democracy

Author:: Mark Calabria
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Arnold Kling's Unchecked and Unbalanced is a novel and insightful take on both the financial crisis and broader trends in the provision of government services. Its central point is best summarized by its subtitle, “How the discrepancy between knowledge and power caused the financial crisis and threatens democracy.” This is a brief, very readable book for two distinct audiences, those interested in further understanding the financial crisis and those interested in improving the accountability and efficiency of services provided by government.
Topic:: Financial Crisis

457. The Making of Americans: Democracy and Our Schools

Author:: Neal McCluskey
Publication Date:: 02-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Historian David Tyack breaks educational progressives into two types: pedagogical and administrative (Tyack 1974). The former are champions of “child-centered” instruction in the classroom, while the latter want centralized, government control of the schools.
Topic:: Education
Political Geography:: America

458. They Spend WHAT? The Real Cost of Public Schools

Author:: Adam B. Schaeffer
Publication Date:: 03-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Although public schools are usually the biggest item in state and local budgets, spending figures provided by public school officials and reported in the media often leave out major costs of education and thus understate what is actually spent.
Topic:: Economics, Education, Government, and Monetary Policy

459. Defining Success: The Case against Rail Transit

Author:: Randal O'Toole
Publication Date:: 03-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Over the past four decades, American cities have spent close to $100 billion constructing rail transit systems, and many billions more operating those systems. The agencies that spend taxpayer dollars building these lines almost invariably call them successful even when they go an average of 40 percent over budget and, in many cases, carry an insignificant number of riders. The people who rarely or never ride these lines but still have to pay for them should ask, “How do you define success?"
Topic:: Government, Markets, and Infrastructure
Political Geography:: America

460. The Case for Auditing the Fed Is Obvious

Author:: Arnold Kling
Publication Date:: 04-2010
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: Recently, the Federal Reserve has significantly altered the procedures and goals that it had followed for decades. It has more than doubled its balance sheet, paid interest to banks on reserves held as deposits with the Fed, made decisions about which institutions to prop up and which should be allowed to fail, invested in assets that expose taxpayers to large losses, and raised questions about how it will avoid inflation despite an unprecedented increase in the monetary base.
Topic:: Economics, Government, Political Economy, Politics, and Financial Crisis
Political Geography:: United States

461. The Inefficiency of Clearing Mandates

Author:: Craig Pirrong
Publication Date:: 07-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: In the aftermath of the financial crisis, attention has turned to reducing systemic risk in the derivatives markets. Much of this attention has focused on counterparty risk in the over-the counter market, where trades are bilaterally executed between dealers and derivative purchasers. One proposal for addressing such counterparty risk is to mandate the trading of derivatives over a centralized clearinghouse. This paper lays out the advantages and risks to a mandated clearing requirement, showing how, in some instances, such a mandate can actually increase systemic risk and result in more financial bailouts.
Topic:: Economics, International Trade and Finance, Markets, and Financial Crisis

462. The DISCLOSE Act, Deliberation, and the First Amendment

Author:: John Samples
Publication Date:: 06-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: The United States Supreme Court decided in Citizens United v. Federal Election Commission that Congress may not prohibit spending on political speech by corporations. President Obama and several members of Congress have sharply criticized Citizens United, and Sen. Charles Schumer and Rep. Chris Van Hollen have proposed the DISCLOSE Act in response to the ruling. DISCLOSE mandates disclosure of corporate sources of independent spending on speech, putatively in the interest of shareholders and voters. However, it is unlikely that either shareholders or voters would be made better off by this legislation. Shareholders could demand and receive such disclosure without government mandates, given the efficiency of capital markets. The benefits of such disclosure for voters are likely less than assumed, while the costs are paid in chilled speech and in less rational public deliberation. DISCLOSE also prohibits speech by government contractors, TARP recipients, and companies managed by foreign nationals. The case for prohibiting speech by each of these groups seems flawed. In general, DISCLOSE exploits loopholes in Citizens United limits on government control of speech to contravene the spirit of that decision and the letter of the First Amendment.
Topic:: Civil Society, Democratization, and Human Rights
Political Geography:: United States

463. The Libertarian Vote in the Age of Obama

Author:: David Kirby and David Boaz
Publication Date:: 01-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Libertarian—or fiscally conservative, socially liberal—voters are often torn between their aversions to the Republicans' social conservatism and the Democrats' fiscal irresponsibility. Yet libertarians rarely factor into pundits' and pollsters' analyses.
Topic:: Democratization and Politics
Political Geography:: United States

464. The Massachusetts Health Plan: Much Pain, Little Gain

Author:: Michael F. Cannon and Aaron Yelowitz
Publication Date:: 01-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: In 2006, Massachusetts enacted a sweeping health insurance law that mirrors the legislation currently before Congress. After signing the measure, Gov. Mitt Romney (R) wrote, "Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced." But did the legislation achieve these goals? And what other effects has it had? This paper is the first to use Current Population Survey data for 2008 to evaluate the Massachusetts law, and the first to examine its effects on the accuracy of the CPS's uninsured estimates, self-reported health, the extent of "crowd-out" of private insurance for both children and adults, and in-migration of new Massachusetts residents.
Topic:: Government, Health, and Privatization
Political Geography:: United States

465. Obama's Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums

Author:: Michael F. Cannon
Publication Date:: 01-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.
Topic:: Government, Health, and Privatization
Political Geography:: United States and America

466. Editor's Note

Author:: James A. Dorn
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: This special issue of the Cato Journal was made possible by a generous grant from the Arthur N. Rupe Foundation. The question posed in this issue—Are Unions Good for America?—has both normative and positive aspects. Normatively, if one takes freedom as a fundamental principle, then compulsory unionism cannot be justified in a free society; it violates the rights of both workers and employers. Under current U.S. labor law, workers are often compelled to join unions and employers are compelled to negotiate "in good faith." Public sector unions are even more onerous than private sector unions; they limit consumer choices and impose heavy tax burdens.
Political Geography:: United States and America

467. The Constitutionalization of Money

Author:: James M. Buchanan
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The market will not work effectively with monetary anarchy. Politicization is not an effective alternative. We must commence meaningful dialogue with acceptance of these elementary verities. Far too much has been said and written in elaboration of the first statement, which too often is taken to be equivalent to the assertion that "capitalism" or "the market" has failed. Admittedly claims for market efficacy without qualifiers can be found. But economists should know that anarchy can only generate disorder rather than its opposite.
Topic:: Markets and Monetary Policy
Political Geography:: United States

468. Creating Financial Harmony: What Role for Government versus the Market?

Author:: Zanny Minton Beddoes
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The Cato Institute has coined a fresh phrase—"financial harmony"—to describe the challenge we face in the aftermath of the biggest financial mess since the Great Depression. But what is financial harmony? Does it prize innovation or stability, the absence of crises or the efficient intermediation of credit?

469. The Great Crash of 2008: Causes and Consequences

Author:: Deepak Lal
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In the early 1980s, I was working as the research administrator at the World Bank, while the Third World was engulfed by a debt crisis. The current global financial crisis has eerie similarities, but different outcomes. Why?
Topic:: Third World and Financial Crisis
Political Geography:: Africa, Asia, and Latin America

470. Learning about Policy from Federal Reserve History

Author:: Allan H. Meltzer
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: For much of the past 15 years, my assistants and I have been read- ing minutes and papers in the National Archives, the Board of Governors, and the New York Federal Reserve Bank. I owe a debt of appreciation to the Board's librarians, to the achivists at the New York bank, to my several assistants, and to many at the Fed who cooperated helpfully to make this project come to completion. The result has now been published in two volumes of more than 2,000 pages. Volume 1 covers the 1913–1951 period and has been in print several years (Meltzer 2003). Volume 2, published in February, is in two parts: part one (Meltzer 2010a) covers the 1951–69 period, and part two (Meltzer 2010b) chronicles the 1970–86 period.
Political Geography:: New York

471. Reassessing the Fed's Regulatory Role

Author:: Charles W. Calomiris
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: As we contemplate the raft of regulatory reforms currently being proposed, it is important not only to consider the content of regulation, but also its structure. In particular, it is important to ask how the role of the Fed as a regulator should change, and how the targets and the tools of monetary and regulatory policy should adapt to new regulatory mandates. For example, some reform proposals envision a dramatic expansion of Fed regulatory authority, while others do not, and some proposals envision the Fed's using monetary policy to prick asset bubbles, while others do not. This article considers the desirability of various financial reforms, the proper future role of the Fed, and the proper use of monetary and regulatory policy tools in light of proposed regulatory reforms. What regulatory and overall policy structure would help us best achieve legitimate policy objective.

472. Paradise Lost: Addressing Too Big to Fail

Author:: Richard W. Fisher
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Sometimes it helps to contemplate economic predicaments by seeking wisdom from definitively noneconomic sources. Consider this passage from Book III of Milton's Paradise Lost , where God answers the question of why He created men and angels who could rebel against Him. Of man, He responds: I made him just and right, Sufficient to have stood, though free to fall. Such I created all th' ethereal Powers And Spirits, both them who stood and them who failed; Freely they stood who stood, and fell who fell.

473. Lender of Last Resort: What It Is, Whence It Came, and Why the Fed Isn't It

Author:: Thomas M. Humphrey
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It has become commonplace in the current crisis to refer to the Federal Reserve as the economy's lender of last resort (LLR). Typical is the observation of Glenn Hubbard, Hal Scott, and John Thornton (2009) that "Over many decades and especially in this financial crisis, the Fed has used its balance sheet to be a classical lender of last resort."
Topic:: Financial Crisis

474. Assessing the Financial Market Damage

Author:: George Melloan
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: If there is a role for the government to play in restoring financial harmony it would have to be quite the opposite from the role Washington has played over the last decade, which has produced financial chaos. But the chances at this point that Washington will reverse its past practices and quietly withdraw to the sidelines so that the markets can make necessary corrections are quite slim, or, more precisely, non-existent. It is the nature of governments to first interfere with market forces and then make the problem worse by addressing the resulting confusions and dislocations by interfering still more.
Political Geography:: Washington

475. Is a Benign Dollar Policy Wise?

Author:: William Poole
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Officially, the United States has a strong-dollar policy, whatever that is supposed to mean. In practice, what we see is a benign dollar policy, by which I mean that the United States is very unlikely to take any action to attempt to affect the value of the dollar on the foreign exchanges that it would not take for other reasons. My title asks the question "Is a Benign Dollar Policy Wise?" My answer is a resounding "yes."
Topic:: Foreign Exchange
Political Geography:: United States

476. The World Economy: Bottoming Out or a Respite before the Next Crunch?

Author:: Eswar Prasad
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In early 2009, the world economy seemed to be headed into an irreversible decline. But a strong dose of stimulative monetary and fiscal policies—perhaps with an assist from the natural resilience of the market economy—seem to have done the trick in stabilizing the financial system and setting the stage for global recovery. Flows of private capital to emerging markets have revived and world trade has begun to rise back to levels seen before the crisis hit. Consumer and business confidence are back on the rise.
Topic:: Markets and Monetary Policy

477. Debt and Systemic Risk: The Contribution of Fiscal and Monetary Policy

Author:: Benn Steil
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The story of the financial crisis will be retold endlessly as one of widespread corruption and incompetence, enabled by a policy agenda fixated on deregulation. But to accept this story, one would have to believe that if the marketplace had been confined to ethical and informed individuals, and if their activities had been carefully scrutinized by diligent regulators, we would have avoided a major financial boom and bust.
Topic:: Debt

478. Government Housing Policy and the Financial Crisis

Author:: Peter J. Wallison
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It is popular around the world to blame the financial crisis on the United States. But before we identify this as the usual anti- Americanism, we should perhaps look more seriously at our country's housing policies. Unfortunately, there is a strong argument that the financial crisis is indeed the fault of the United States—an artifact of the housing policies that this country has followed since the early 1990s. These policies produced an unprecedented number of subprime and other nonprime mortgages (known as Alt-A), and when the housing bubble topped out in late 2006 and early 2007, these loans began to default at unprecedented rates. In my view, the severe losses associated with these defaults caused weakness of Bear Stearns and AIG—resulting in their rescue—the failure of Lehman Brothers, the severe recession we are experiencing in the United States today, and ultimately the financial crisis itself.
Topic:: Financial Crisis
Political Geography:: United States

479. Economic Contractions in the United States: A Failure of Government

Author:: Mark Calabria
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Charles Rowley and Nathanael Smith have put together a brief, yet extensive, study comparing America's Great Depression and the recent financial crisis. Their focus is on both the economics and the politics behind these events. With both, they demonstrate how each was a failure of government, not of the market. The book concludes with several recommendations for addressing our nation's current economic and fiscal situation. The most original contribution of their work is in bringing a Public Choice framework to evaluating the financial crisis.
Topic:: Economics and Financial Crisis
Political Geography:: United States

480. Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives, and Bankrupting the Nation

Author:: Chris Edwards
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: New data from the Bureau of Labor Statistics show that there are more union members in the public sector than in the private sector in the United States. Thirty-nine percent of state and local government workers are members of unions, compared to just 7 percent of private sector workers. What problems are caused by the high level of public sector unionism?
Topic:: Monetary Policy
Political Geography:: United States

481. Mind vs. Money: The War between Intellectuals and Capitalism

Author:: Jason Kuznicki
Publication Date:: 06-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Alan Kahan's Mind vs. Money is an absurdly ambitious little book. I had all sorts of disagreements with it, both factually and methodologically. Still, it does important work, and does so well enough that I would not hesitate to teach from it as a textbook in the intellectual history of commerce.

482. Short Sales Bans: Shooting the Messenger?

Author:: Laurence Copeland
Publication Date:: 09-2010
Content Type:: Policy Brief
Institution:: The Cato Institute
Abstract:: In response to the recent financial crisis, many governments chose to ban or restrict short sales, hoping to mitigate the impact of the stock market downturn. Stock markets function as a continuous election, held to determine the allocation of resources with buyers voting for and sellers voting against investment in particular stocks. Banning short selling is akin to disenfranchising the "no" voter, thereby creating a distortion in the resource allocation process. Ban-induced price distortions damage the integrity of stock prices among investors and potentially cause stocks to expand beyond what is optimal for the firms and the economy.
Topic:: Economics, Markets, Global Recession, and Financial Crisis
Political Geography:: Washington

483. Budgetary Savings from Military Restraint

Author:: Benjamin H. Friedman and Christopher Preble
Publication Date:: 09-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: The United States needs a defense budget worthy of its name, one that protects Americans rather than wasting vast sums embroiling us in controversies remote from our interests. This paper outlines such a defense strategy and the substantial cuts in military spending that it allows. That strategy discourages the occupation of failing states and indefinite commitments to defend healthy ones. With fewer missions, the military can shrink its force structure—reducing personnel, the weapons and vehicles procured for them, and operational costs. The resulting force would be more elite, less strained, and far less expensive. By avoiding needless military conflict and protecting our prosperity, these changes would make Americans more secure.
Topic:: Defense Policy, Arms Control and Proliferation, and Debt
Political Geography:: United States and America

484. Reforming Indigent Defense: How Free Market Principles Can Help to Fix a Broken System

Author:: Stephen J. Schulhofer and David Friedman
Publication Date:: 09-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Criminal defense systems are in a state of perpetual crisis, routinely described as “scandalous.” Public defender offices around the country face crushing caseloads that necessarily compromise the quality of the legal representation they provide. The inadequacy of existing methods for serving the indigent is widely acknowledged, and President Obama has recently taken steps to give the problem a higher priority on the national agenda.
Topic:: Defense Policy, Markets, Law, and Prisons/Penal Systems

485. Editor's Note

Author:: James A. Dorn
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Part 2 of Restoring Global Financial Stability, based on the Cato Institute's 27th Annual Monetary Conference, held in Washington, D.C., on November 19, 2009, contrasts the current discretionary government fiat money regime with alternatives designed to improve global financial stability. Those alternatives range from constraining the power of central banks by imposing some type of monetary rule to replacing them with private competing currencies convertible into one or more commodities. Even if it is unlikely that the Federal Reserve and other central banks would be abolished any time soon, it is useful to consider the properties of private, rule-based, market-friendly monetary regimes.

486. Privatizing Money

Author:: Leland B. Yeager
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Restoring global financial stability requires attention to the currencies themselves that circulate at home and abroad. I'll focus attention on that aspect of the problem.

487. Alternatives to the Fed?

Author:: Bennett T. McCallum
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: I must begin by saying that I have been extremely disappointed— the word “appalled” may be more accurate—by several developments over the last two years involving the Federal Reserve. It was, I believe, appropriate that the Fed would respond with expansionary monetary policy in the face of a major macroeconomic downturn, which it did. But it did not have to do so by means of operations that incorporated major excursions into credit policy, as well as monetary policy, and thereby into the unauthorized exercise of fiscal policy. By engaging in such operations on a very large scale, the Fed's actions are almost certain to have detrimental effects on the Fed's independence—and thereby on its resulting ability to focus attention on what should be its principal objective, namely, price level stability. Furthermore, the Fed has not been moving quickly—if at all—to explain and correct this situation.
Topic:: Monetary Policy

488. The Rule of Law or the Rule of Central Bankers?

Author:: Lawrence H. White
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Economists often prescribe that countries seeking economic development should embrace the principle of the rule of law. I want to suggest that we listen to our own advice and apply it to our monetary and financial system. The principle of the rule of law could usefully guide us in resolving the extraordinary situation we have been in for the past two years or so, and even more importantly help us to avoid future crises.

489. The Futility of Central Banking

Author:: George A. Selgin
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It has been more than three decades since Arthur Burns (1979) gave his famous Per Jacobsson lecture on “The Anguish of Central Banking.” In it he declared that Coming from a recently retired Fed chairman, this was a remarkable statement. It amounted to an admission that the Fed was quite incapable of performing its most fundamental task, and that the problem was, not any lack of material means on the Fed's part, but simply the will to do what needed doing given political incentives then at play.

490. Role of the IMF in the Global Financial Crisis

Author:: Miranda Xafa
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: More than two years on, the impact of the financial crisis that erupted in August 2007 is still being felt as the global economy emerges from the Great Recession. The crisis intensified dramatically after the bankruptcy of Lehman and the rescue of insurance giant AIG in September 2008, which narrowly avoided a near-simultaneous failure of multiple counterparties. The International Monetary Fund's early forecast of the severity of the resulting economic downturn (IMF 2008a) helped mobilize concerted official action to address quickly and forcefully these extraordinary economic and financial events by providing fiscal stimulus to sustain growth, as well as capital injections and guarantees to ease the credit crunch. Following the emergency summit of G20 leaders in Washington in November 2008, support packages for banks were put together in a hurry in the United States, Europe, and elsewhere to prevent the dis- orderly failure of systemically important institutions and to restore confidence in the financial system.
Topic:: Financial Crisis
Political Geography:: United States and Middle East

491. Crisis Prevention through Global Surveillance: A Task beyond the IMF

Author:: Swaminathan S. Anklesaria Aiyar
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: In early 2008, the future of the International Monetary Fund was in doubt. The world was awash with dollars since the United States ran an enormous current account deficit, the mirror image of which was trade surpluses in most other countries. Hence, few countries had balance of payments problems, and the IMF had few borrowers. IMF income was insufficient to meet its costs, and so it retrenched hundreds of economists, and both its relevance and legitimacy were questioned. But that episode now looks like a temporary historical blip. After the collapse of Lehman Brothers—and the global financial system—in September 2008, the IMF was suddenly in more demand by governments than ever before to help finance stricken countries across continents. The G20 agreed to triple IMF resources to $750 billion, the four BRICs (Brazil, Russia, India, and China) agreed to subscribe to the IMF's first bond issue of $80 billion, and India has bought 200 tons of IMF gold. So an IMF role seems assured in future crises.
Topic:: International Monetary Fund
Political Geography:: United States and Tamil Nadu

492. The IMF and Its Barbarous Relic

Author:: Judy Shelton
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The International Monetary Fund has a wonderful heritage, a priceless legacy. It was created for the loftiest of economic purposes—to provide a stable monetary foundation to facilitate free trade and international capital flows—and to provide hope to a world beset by vicious and destructive war. Its architects, Harry Dexter White and John Maynard Keynes, surmounted personality clashes and political strains to carry out the mission that garnered their mutual respect: to establish optimal conditions for achieving world prosperity and world peace.
Topic:: Economics and International Monetary Fund

493. Down with Stability

Author:: James Grant
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: It's a contentious speaker who sets out begging to disagree with the theme of the program on which he is honored to appear. But really, “Restoring Global Financial Stability”? Stability, so-called, was the false god of the bubble years. Instability is the way of the world. Honest turmoil is my topic for today. I'm all for it.

494. A Constant Unit of Account

Author:: Richard W. Rahn
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Over the past several decades, I have been a professional economist, government advisor, financial regulator, and have also engaged in international business. After this variety of experience, I am now more than ever convinced that Hayek was absolutely correct in how the government monopoly of the issuance of money leads to a never-ending cycle of economic crises. A decade ago, I was hopeful that the ability of private parties to create their own digital currency might be our salvation, and that led me to write a book, The End of Money and the Struggle for Financial Privacy (Rahn 1999). At the time, Milton Friedman told me that I was much too optimistic about how long it would take. Friedman was right, as usual, and we still seem decades away from this ideal.
Topic:: Government

495. A Market-Based Regulatory Policy to Avoid Financial Crises

Author:: Luigi Zingales
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: When it comes to “saving capitalism,” dealing with the “too big to fail” doctrine is a top priority. This doctrine has increasingly become the government policy on this issue, and it is probably the most dangerous policy for capitalism we can imagine. It under- mines capitalism in many ways: not only does it make the system less stable, but it also undermines the moral basis of capitalism. If you have a sector or a set of institutions where losses are socialized but where gains are privatized, then you destroy the economic and moral supremacy of capitalism. Either we deal with the perverse incentives created by this doctrine or we undermine the long-term sustainability of capitalism. So it is really important to think what we can do against this too-big-to-fail policy.
Topic:: Economics

496. Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking

Author:: Gerald P. O'Driscoll Jr.
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Chapter 1 of the book is titled “It's a Horrible Mess,” and in it Laurence Kotlikoff, a professor of economics at Boston University, reminds the reader of the breadth, depth, and horror of the global financial crisis. It is a cure for the dispassionate observer of events, an indictment that would send all but those with ice water in their veins to sign up for the Tea Party Express. The book is a particularly well-written account of the crisis that begins in housing finance, spreads throughout the financial system, and then throughout the real economy. The crisis hit in tsunami-like waves beginning in 2007 and continued into 2009.
Topic:: Financial Crisis

497. The New Holy Wars: Economic Religion vs. Environmental Religion in Contemporary America

Author:: Richard L. Gordon
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Robert H. Nelson, one of the world's leading natural resource economists, long has argued that the ideologies in economics are secularizations of traditional religion and that this concealment is ill advised. Less convincingly, he advocates linking these new ideologies to their religious roots. He now also brands environmentalism as a secular religion whose roots need examination. This book postulates a war between that religion and the economic religion that he previously criticized.
Topic:: Disaster Relief
Political Geography:: America

498. The Rational Optimist: How Prosperity Evolves

Author:: Aaron Ross Powell
Publication Date:: 09-2010
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Science writer Matt Ridley is, as the title of his new book suggests, optimistic about humanity's future—and not just at the prospect of even better lives for those lucky enough to have excellent lives already, but at the possibility of radically transforming, for the better, the lives of those today suffering near the bottom. The key, he thinks, is economic growth, that boogeyman of naysayers and concerned citizens everywhere. “It is precisely because there is still so much further to go that those who offer counsels of despair or calls to slow down in the face of looming environmental disaster may be not only factually but morally wrong,” he argues. The path to that better world 100 years from now will not be smooth. Mankind is likely to experience traumas both of a natural sort and of its own creation. Most troubling, “The wrong kind of chiefs, priests and thieves could yet snuff out future prosperity on earth.” Ridley doesn't let this possibility get him down. Humans are too driven to trade, exchange their ideas, and imagine new ones for a few bad apples to ruin the future.
Topic:: Disaster Relief

499. Congress Should Account for the Excess Burden of Taxation

Author:: Christopher J. Conover
Publication Date:: 10-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: A well-established principle of public finance holds that taxes impose costs on society beyond the amount of revenue government collects. Estimates vary depending on the type of tax, but the “marginal excess burden” of federal taxes most likely ranges from 14 to 52 cents per dollar of tax revenue, averaging about 44 cents for all federal taxes.
Topic:: Economics, Government, and Markets
Political Geography:: United States

500. Fiscal Policy Report Card on America's Governors: 2010

Author:: Chris Edwards
Publication Date:: 09-2010
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: State governments have had to make tough budget choices in recent years. Tax revenues have stagnated as a result of the poor economy, and that has prompted governors to take a variety of fiscal actions to close large budget gaps. Some governors have cut spending to balance their budgets, while others have pursued large tax increases.
Topic:: Economics, Government, Markets, and Monetary Policy
Political Geography:: America

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