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38981. Is the European Central Bank Failing Its Price Stability Mandate?

Author:
Ángel Ubide
Publication Date:
02-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Inflation in the euro area is too low, just 0.9 percent year-on-year in December 2013, and inflation expectations, measured from inflation derivative contracts, have shifted lower, indicating that markets expect some small probability of deflation in 2014 and average inflation over the next five years in the 1.25 to 1.5 percent range. The European Central Bank (ECB), however, seems to be content with this outlook. Its current projections show a very slow economic recovery and inflation at just 1.3 percent in two years' time. Yet the ECB describes the risks to inflation as balanced. This puzzling assessment might be due to the fact that the ECB's definition of price stability is less precise than that employed by other central banks, and some ECB members may interpret the definition as setting a ceiling, rather than a target, for inflation at close to but below 2 percent. But if one considers the ECB's self-assessment of success since its creation—achieving 2 percent inflation on average—its current inflation forecast of 1.3 percent would fall short of achieving its price stability mandate.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe

38982. Monetary Policy with Abundant Liquidity: A New Operating Framework for the Federal Reserve

Author:
Joseph E. Gagnon and Brian Sack
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The dramatic increase in the Federal Reserve's balance sheet since 2009 has attracted the attention of economists, pundits, and ordinary citizens. The amount of assets held by the Fed recently crossed $4 trillion and will likely continue to rise to a peak of about $4.5 trillion. This run-up in asset holdings has resulted from the Fed's large-scale asset purchase programs, which were intended to support economic growth. However, a side-effect of these asset purchases is the creation of unprecedented amounts of liquidity in the financial system.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
United States

38983. Income Inequality Developments in the Great Recession

Author:
Tomas Hellebrandt
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The Great Recession, which cost tens of millions of jobs, a collapse of asset values around the world, and threatened the global financial system, has generated renewed concern over the long-standing issue of the fairness of the distribution of wealth and income in many societies. Economic inequality has increased in the United States and many other advanced economies over the past 20 to 30 years. This trend generated less worry in the boom years, when unemployment rates were low and cheap credit enabled consumers to borrow and maintain higher standards of living, masking the impact of growing income disparity on consumption patterns and perceptions of well-being.
Topic:
Debt, Economics, International Trade and Finance, Poverty, Social Stratification, and Financial Crisis
Political Geography:
United States, United Kingdom, Germany, Spain, Italy, and Ireland

38984. Addressing Currency Manipulation Through Trade Agreements

Author:
C. Fred Bergsten
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
A bipartisan majority in both Houses of Congress is insisting that the United States include a provision in future trade agreements that would bar currency manipulation. A letter from 60 senators to Secretary of the Treasury Jacob Lew and United States Trade Representative (USTR) Michael From an on September 23, 2013, called for "strong and enforceable foreign currency manipulation disciplines" in the Trans-Pacific Partnership (TPP) while 230 members of the House of Representatives told President Barack Obama on June 6, 2013, that "it is imperative that (the TPP) address currency manipulation.to create a level playing field for American businesses and prevent more US jobs from being shipped overseas." The trade promotion authority (TPA) legislation proposed by congressional trade leaders on January 9, 2014, establishes the avoidance of currency manipulation as a "principal US negotiating objective" in its future trade agreements.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
Political Geography:
United States

38985. Making Labor Market Reforms Work for Everyone: Lessons from Germany

Author:
Jacob Funk Kirkegaard
Publication Date:
01-2014
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Mark Twain once wrote an essay about the difficulties of learning what he called "The Awful German Language." Similar barriers to comprehension seem to plague those trying to explain recent German economic performance. By most measures, Germany has the best functioning labor market among large economies in the West, with levels of employment reaching those in the United States at the end of the turbo-charged 1990s. A debate has stirred, however, about whether this success has come with a price—specifically, whether Germany's domestic structural reforms have lowered living standards for Germany's low income workers and worsened income inequality and whether Germany is fortuitously and perhaps selfishly riding a wave of strong foreign demand for German exports.
Topic:
Economics, Industrial Policy, International Trade and Finance, Markets, and Labor Issues
Political Geography:
United States, Europe, and Germany

38986. The Coasean Framework of the New York City Watershed Agreement

Author:
Geoffrey Black, D. Allan Dalton, Samia Islam, and 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

38987. Marginal Tax Rates and U.S. Growth: Flaws in the 2012 CRS Study

Author:
Jason E. Taylor and 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

38988. State Fiscal Policies for Budget Stabilization and Economic Growth: A Dynamic Scoring Analysis

Author:
John Merrifield and 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

38989. The Medical Care Cost Ratchet

Author:
Andrew Foy, Christopher Sciamanna, Mark Kozak, and 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

38990. Forecast Bias of Government Agencies

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

38991. A Fresh Look at Climate Change

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 and United Nations
Political Geography:
United Nations

38992. Contingent Liability, Capital Requirements, and Financial Reform

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

38993. The Explicit Costs of Government Deposit Insurance

Author:
Thomas L. Hogan and 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

38994. Pathological Altruism and Pathological Regulation

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

38995. Free Market Revolution: How Ayn Rand's Ideas Can End Big Government

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

38996. Political Bubbles: Financial Crises and the Failure of American Democracy

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

38997. The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth's Future

Author:
Patrick J. Michaels
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Yale historian Paul Sabin's The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth's Future is worth a read because of its detailed tour through the world of environmental doomsaying. Yet, in the end, I was profoundly disappointed, consigning this book to my very large Cassandra File because Sabin endorses that doomsaying as expressed by dreaded global warming.
Topic:
Climate Change

38998. The Great Rent Wars: New York 1917-1929

Author:
Peter Van Doren
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Economic shocks in an unregulated textbook world are managed through the price system. During gluts, prices fall and the least efficient firms lose wealth and exit the market. The result is that supply falls and demand increases. Eventually a new equilibrium is reached in which prices increase toward marginal cost and risk-adjusted returns to firms equal the cost of capital. During shortages, prices rise, existing firms receive rents, and new firms enter the market. The result is that supply increases and demand falls. Eventually a new equilibrium is reached in which prices decrease toward marginal cost and risk-adjusted returns to firms fall to equal the cost of capital.
Topic:
War
Political Geography:
New York

38999. Heels in High Places: Representation of Women on Corporate Boards

Publication Date:
03-2014
Content Type:
Journal Article
Journal:
Americas Quarterly
Institution:
Council of the Americas
Abstract:
The representation of women on corporate executive boards has grown in the past two years, particularly in developed economies. But things could be better, both in terms of absolute numbers and their influence. The issue goes beyond gender balance and equity. The representation of women on corporate boards means higher profits.

39000. Beyond Equal Rights

Author:
Michelle Bachelet
Publication Date:
03-2014
Content Type:
Journal Article
Journal:
Americas Quarterly
Institution:
Council of the Americas
Abstract:
Women's political and economic participation strengthens democracy, equality and the economy. And while women's empowerment and full participation in society are important goals in themselves, they are also vital for reducing poverty, achieving universal education, improving maternal and child health, and fulfilling other development goals. Increasing the presence of women in politics not only responds to their rights as citizens; it enriches political discourse, decision-making and inclusiveness, and improves social conditions through the passage of equitable laws and policies.
Topic:
Economics and Politics
Political Geography:
Latin America