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602. Greenspan's Monetary Policy in Retrospect
- Author:
- David R. Henderson and Jeffrey Hummel
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Is Alan Greenspan to blame for the current housing bubble and the ongoing financial crisis? A growing chorus charges the former Federal Reserve chairman with being an "inflationist" whose loose monetary policy caused or significantly contributed to our current economic troubles. However, although Greenspan's policies weren't perfect, his monetary policy was in fact tight, and his legacy is one of having overseen low and stable inflation and a striking dampening of the business cycle.
- Topic:
- Economics
- Political Geography:
- United States
603. How Did We Get into This Financial Mess?
- Author:
- Lawrence H. White
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- As policymakers confront the ongoing U.S. financial crisis, it is important to take a step back and understand its origins. Those who fault "deregulation," "unfettered capitalism," or "greed" would do well to look instead at flawed institutions and misguided policies. The expansion in risky mortgages to under qualified borrowers was encouraged by the federal government. The growth of "creative" nonprime lending followed Congress's strengthening of the Community Reinvestment Act, the Federal Housing Administration's loosening of down-payment standards, and the Department of Housing and Urban Development's pressuring lenders to extend mortgages to borrowers who previously would not have qualified.
- Topic:
- Economics and Government
- Political Geography:
- United States
604. Aggregate Supply-Driven Deflation and Its Implications for Macroeconomic Stability
- Author:
- David Beckworth
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Deflation is generally considered to be inconsistent with macroeconomic stability. Any sustained decline in the price level is widely believed to be associated with weak to negative economic growth, a lower bound of zero on the policy interest rate, and an increase in financial disintermediation. However, a number of recent studies examining both historical, cross-country experience with deflation and more recent developments find that these concerns are not necessarily associated with deflation (Selgin 1997, 1999; Cleveland Federal Reserve 1998; Stern 2003; Bordo and Redish 2004; Bordo, Lane, and Redish 2004; Bordo and Filardo 2005; Borio and Filardo 2004; Farrell 2004; King 2004; The Economist 2004, 2005; White 2006). They show that the deflationary experiences that shape the modern economic psyche, the Great Depression in the 1930s and Japan in the 1990s, are not truly representative of all deflation outcomes. These studies contend that a broader, historical perspective reveals a more nuanced view of deflation, one that requires taking seriously the possibility of both a malign deflation, a deflation originating from a collapse in aggregate demand, and a benign deflation, a deflation originating from an increase in aggregate supply.
- Political Geography:
- Japan
605. Sustained Economic Growth: Do Institutions Matter, and Which One Prevails?
- Author:
- Abdoul' Ganiou Mijiyawa
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In 1965, the growth rate of per capita GDP in Niger and Nigeria was 2.1 percent and 4.2 percent, respectively, and 2.9 percent in Botswana. From 1966 to 1969, however, Niger and Nigeria recorded a negative growth rate, while Botswana continued to experience a positive growth rate over the same period. In 1990, the growth rate of per capita GDP was 1 percent in Ghana and 5.2 percent in Nigeria. Yet, from 1991 to 1994, the growth rate was negative in Nigeria and positive in Ghana. Why does the trajectory of economic growth episodes differ among countries? In other words, why is economic growth more sustainable in some countries than in others?
- Topic:
- Economics
- Political Geography:
- Nigeria and Ghana
606. Censoring and Destroying Information in the Information Age
- Author:
- J. R. Clark and Dwight R. Lee
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Almost everyone knows the importance of information and communication to economic progress. The more information we have the more productive we can be, both individually and collectively. The easier it is for us to communicate our information to others and to receive their information, the more likely we will make production and consumption choices that serve the interests of all. No wonder people are so impressed with the recent breakthroughs in information and communication technology that have moved us into what has become known as the “information age.” Who could possibly condone, much less recommend, policies that destroy and distort valuable information by censoring its communication? Far more than you might think!
- Topic:
- Communications
607. State Fiscal Crises: Are Rapid Spending Increases to Blame?
- Author:
- Dean Stansel and David T. Mitchell
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- During recessions, state governments frequently face substantial midyear budget shortfalls. Numerous states are now experiencing such crises again. These fiscal crises are often blamed on the cyclical decline in revenue growth or reductions in federal aid. Others have suggested that enacting rapid spending increases during expansionary years—rather than using the revenue windfalls for tax cuts or increases in rainy day funds—may be an important contributing factor to those budget shortfalls. Using data from the 2001 recession, we find support for that “overspending” hypothesis. While neither the mere presence nor the size of a rainy day fund were significant predictors of fiscal stress, faster increases in spending are positively and significantly associated with fiscal stress. When rainy day funds work, it is the strength of their withdrawal rules that matter. These results have important implications for fiscal policy choices. States that restrain spending growth during expansionary years and implement strong rainy day fund withdrawal rules are likely to face less severe fiscal crises during recessions.
608. Small States: Not Handicapped and Under-Aided, but Advantaged and Over-Aided
- Author:
- Swaminathan S. Anklesaria Aiyar
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Small states have long been viewed by international organizations as a special category with special handicaps requiring special assistance. The United Nations has created an Office of the High Representative for the Least Developed Countries, Land locked Developing Countries, and Small Island Developing States. The very wording makes it clear that the UN regards small developing states that are landlocked or islands as being on par with the least developed countries. A very substantial academic literature has been devoted to small states, to which the World Bank and Common-wealth Secretariat have made contributions. They constituted a Joint Task Force that submitted a report in April 2000, Small States: Meeting Challenges in the Global Economy, proposing an agenda for assisting such states in various ways, including increasing foreign aid (World Bank 2000). This report was followed in 2005 by a review of progress on the 2000 agenda, Towards an Outward-Oriented Development Strategy for Small States(Briguglio, Persaud, and Stern 2005), henceforth referred to as the World Bank-Common-wealth review. This review also suggested increasing foreign aid. In2006, the Independent Evaluation Group (IEG 2006) of the World Bank produced an evaluation of World Bank assistance to small states. During that same year, the World Bank also commissioned four regional studies of small states, which formed the basis of a subsequent book, Small States, Smart Solutions(Favaro 2008).Finally, in 2008, the World Bank released The Growth Report, also known as the Spence Commission report, which devoted a special section to small states (World Bank 2008)
- Topic:
- United Nations
609. Parental Valuation of Charter Schools and Student Performance
- Author:
- James VanderHoff
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Students enrolled in charter schools increased by 81 percent from 2002 to 2007, and the number of charter schools increased by 52 percent. Nevertheless, many studies indicate students in charter schools do not score as highly on standard tests as students in traditional public schools. Do parents choose academically inferior schools for their children because other factors are more important? The significance of that question stems from the requirement of scholastically motivated parental choice for competition-induced improvement in public schools. Milton Friedman (1962) and other shave argued that parental choice would stimulate public schools to be more academically effective, because dissatisfied parents would move their children from inferior to superior schools, including public charter schools.
610. Cold Case Files: The Athenian Grain Merchants, 386 B.C.
- Author:
- Wayne R. Dunham
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Food price increases have always been politically sensitive. Price spikes like those that have occurred recently create the demand for action on the part of government to alleviate the problem. Yet, government intervention can often do more harm than good. This article examines one such example of a counterproductive response that occurred in 388 B.C. in Athens, Greece. In response to a negative supply shock to the grain market, regulators encouraged grain importers to form a buyers' cartel (monopsony), hoping that it would reduce retail prices by first lowering wholesale grain prices. In reality, the decrease in wholesale prices resulted in a decrease in the willingness of producers in other regions to supply grain to Athens, and retail grain prices increased substantially. Grain importers soon found themselves on trial for their lives in what is probably the earliest recorded antitrust trial. This article uses the information presented at that trial and other contemporary sources to evaluate the grain merchants' actions. More generally, it analyses the impact of a buyer's cartel or monopsony on prices and consumption.
- Topic:
- Food
- Political Geography:
- Greece
611. State Sanctions and the Decline in Welfare Caseloads
- Author:
- Michael J. New
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Much of the scholarship analyzing fluctuations in welfare caseloads focuses on such factors as the strength of the economy and the generosity of welfare benefits. However, with the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996, states obtained significantly more control over welfare policy. Despite this shift, there has been relatively little academic research on the role of state policy variation in welfare caseload fluctuations. This article provides solid evidence that strength of state sanctioning policies, which give caseworkers the ability to restrict the benefits of welfare recipients, has played a very significant role in recent welfare caseload declines. A comprehensive regression analysis of welfare caseloads from all 50 states from every year from 1996 to 2002, finds that strong state sanctioning policies are highly correlated with both large welfare caseload declines and low caseload levels.
612. Creating Financial Harmony: Lessons for China
- Author:
- James A. Dorn
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The current turmoil in global financial markets, which began with the U.S. subprime crisis in 2007, has shed a bad light on market liberalism. But it was the socialization of risk—not private free markets—that precipitated the crisis. Government sponsored enterprises (GSEs), not private enterprises, politicized investment decisions and overextended credit to high-risk households by buying up and guaranteeing subprime and Alt-A mortgages.
- Political Geography:
- China
613. Termites in the Trading System: How Preferential Agreements Undermine Free Trade by Jagdish Bhagwati
- Author:
- Daniel Griswold
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This may sound like a “man bites dog” story—“Leading free trade economist denounces free trade agreements!”—but it is not such a strange tale in the world of international economics. Since the pioneering work of Jacob Viner in the 1950s, economists have known that bilateral and regional trade agreements can actually reduce a nation's welfare by merely diverting trade rather than creating new trade. In his latest book, Jagdish Bhagwati of Columbia University makes a tough, passionate, and concise, if not airtight, argument that the proliferation of such agreements is fatally undermining the global effort to advance free trade.
614. The Swiss National Bank: 1907–2007 by Werner Abegg, Ernst Baltensperger, et al., contributors
- Author:
- Kurt Schuler
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The Swiss franc is the world's best-performing currency over the last century: it has lost only about 87 percent of its value in terms of gold, compared to 97 percent for the U.S. dollar and more than 99 percent for almost all other currencies. Switzerland's avoidance of wars, which is part policy and part lucky geography, has contributed to the relative stability of the franc. So have the conservative financial habits of its citizens, which have been reflected in the country's generally prudent government finances. But some credit undoubtedly belongs to the central bank, the Swiss National Bank. It has consistently pursued monetary policies that have produced low inflation, and has made few consequential errors since it was established in 1907. Its experience therefore should be of interest far beyond the borders of Switzerland. This centennial volume, by a constellation of 40 Swiss and foreign authors, is a history and an examination of issues in monetary policy the central bank has faced. It is typically Swiss in its occasionally ponderous thoroughness, pleasing design, and high quality.
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- France and Switzerland
615. Nudge: Improving Decisions about Health, Wealth, and Happiness
- Author:
- Ike Brannon
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- When it comes to social policy, inertia can be a bitch. While the sentiment may not seem all that profound, its gradual realization by economists and policymakers is beginning to have an impact on public policy. It has already wreaked havoc within the economics discipline.
- Topic:
- Economics and Health
616. Forgotten Continent: The Battle for Latin America's Soul
- Author:
- Juan Carlos Hidalgo
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- For most of this decade, Latin America has been neglected by the developed world. At least that is a recurring grievance from leaders and specialists in the region. The attention of rich countries has switched to terrorism in the Middle East and poverty in Africa, while pressing needs and conflicts remain unattended in Latin America.
- Topic:
- Terrorism
- Political Geography:
- Africa, Middle East, and Latin America
617. Heads in the Sand: How Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats by Matthew Yglesias
- Author:
- Brendan Rittenhouse Green
- Publication Date:
- 09-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Credit where credit is due: At 229 pages, Matthew Yglesias has written the world's longest blog post. The first of a generation of journalists who came to prominence through their personal weblogs, Yglesias now blogs professionally for the Center for American Progress. Heads in the Sand has all the virtues and flaws of the medium Yglesias helped pioneer. It tends toward bite-sized arguments and pith over substance, which leaves some of the chapters with a stapled-together feel. Heads in the Sand gives the impression of a Web journal read straight through, with an extremely thin set of foot-notes substituting for links. Nevertheless, the book is by and large excellent. It is full of wit and erudition, stringing together a series of incisive arguments about politics and foreign policy.
- Topic:
- Foreign Policy and Politics
- Political Geography:
- America
618. Is the Gold Standard Still the Gold Standard among Monetary Systems?
- Author:
- Lawrence H. White
- Publication Date:
- 02-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- Critics have raised a number of theoretical and historical objections to the gold standard. Some have called the gold standard a “crazy” idea. The gold standard is not a flawless monetary system. Neither is the fiat money alternative. In light of historical evidence about the comparative magnitude of these flaws, however, the gold standard is a policy option that deserves serious consideration.
- Topic:
- Economics and Government
- Political Geography:
- United States
619. WHO's Fooling Who? The World Health Organization's Problematic Ranking of Health Care Systems
- Author:
- Glen Whitman
- Publication Date:
- 02-2008
- Content Type:
- Policy Brief
- Institution:
- The Cato Institute
- Abstract:
- The World Health Report 2000, prepared by the World Health Organization, presented performance rankings of 191 nations' health care systems. These rankings have been widely cited in public debates about health care, particularly by those interested in reforming the U.S. health care system to resemble more closely those of other countries. Michael Moore, for instance, famously stated in his film SiCKO that the United States placed only 37th in the WHO report. CNN.com, in verifying Moore's claim, noted that France and Canada both placed in the top 10.
- Topic:
- Health, Human Welfare, Humanitarian Aid, and International Organization
- Political Geography:
- United States
620. What to Do about Climate Change
- Author:
- Indur M. Goklany
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The state-of-the-art British-sponsored fasttrack assessment of the global impacts of climate change, a major input to the much-heralded Stern Review on the Economics of Climate Change, indicates that through the year 2100, the contribution of climate change to human health and environmental threats will generally be overshadowed by factors not related to climate change. Hence, climate change is unlikely to be the world's most important environmental problem of the 21st century.
- Topic:
- International Relations, Climate Change, Environment, and Globalization
- Political Geography:
- Britain
621. Learning the Right Lessons from Iraq
- Author:
- Harvey Sapolsky, Christopher Preble, and Benjamin Friedman
- Publication Date:
- 02-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Foreign policy experts and policy analysts are misreading the lessons of Iraq. The emerging conventional wisdom holds that success could have been achieved in Iraq with more troops, more cooperation among U.S. government agencies, and better counterinsurgency doctrine. To analysts who share these views, Iraq is not an example of what not to do but of how not to do it. Their policy proposals aim to reform the national security bureaucracy so that we will get it right the next time.
- Topic:
- International Relations and Oil
- Political Geography:
- United States, Iraq, and Middle East
622. Cracks in the Foundation: NATO's New Troubles
- Author:
- Stanley Kober
- Publication Date:
- 01-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The North Atlantic Treaty Organization is beginning to fracture. Its members, sharing the triumphalism that underpinned U.S. foreign policy after the Cold War, took on burdens that have proved more difficult than expected. Increasingly, they are failing to meet the challenges confronting them.
- Topic:
- International Relations, Defense Policy, NATO, and International Organization
- Political Geography:
- United States
623. Editor's Note
- Author:
- James A. Dorn
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This issue of the Cato Journal features articles that were first presented at the Cato Institute's 25th Annual Monetary Conference, November 14, 2007. The theme of that conference—Monetary Arrangements in the 21st Century—raises important questions about the types of monetary regimes that best protect the value and stability of money while promoting economic freedom.
624. The Fed's Road toward Greater Transparency
- Author:
- Ben S. Bernanke
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Montagu Norman, the governor of the Bank of England from 1921 to 1944, reputedly took as his personal motto, “Never explain, never excuse.” Norman's aphorism exemplified how he and many of his contemporaries viewed the making of monetary policy—as an arcane and esoteric art, best practiced out of public view. Many central bankers of Norman's time (and, indeed, well into the postwar period) believed that a certain mystique attached to their activities and that allowing the public a glimpse of the inner workings would only usurp the prerogatives of insiders and reduce, if not grievously damage, the effectiveness of policy.
625. Renminbi Exchange Rates and Relevant Institutional Factors
- Author:
- Yi Gang
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- In recent years, China has experienced rapid social and economic development. Against this backdrop, growing pressure for renminbi appreciation emerged and China's trade surplus and foreign reserves increased rapidly. This article explains the development of the RMB exchange rate by examining productivity growth and institutional factors, such as the transformation of the foreign exchange rate system and legal reforms to strengthen the rule of law.
- Political Geography:
- China
626. The Future of the Renminbi and Its Impact on the Hong Kong Dollar
- Author:
- Eddie Yue and Dong He
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article outlines our thoughts on the following three issues. First, will the renminbi become an international currency in the foreseeable future? Second, what does the international use of the renminbi mean for Hong Kong? Third, should the Hong Kong dollar exchange rate be repegged to the renminbi?
627. The Costs and Implications of PBC Sterilization
- Author:
- John Greenwood
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Since China revalued its currency against the U.S. dollar by 2.1 percent in July 2005, from RMB 8.27 per US$ to RMB 8.11, the RMB has appreciated by a further 14 per cent percent to about RMB 6.97 per US$ (as of May 2008). On a trade-weighted basis, however, the currency has appreciated less than half this amount. Using J.P. Morgan's trade-weighted index (broad basis) for the RMB, the currency appreciated just 6.1 percent in nominal terms between August 2005 and May 2008. Although the currency has been very gradually appreciating, the flexibility promised by China's leaders has been more illusory than real, and, more importantly, the underlying international payment imbalances have continued to widen both in absolute terms and as a fraction of GDP.
- Political Geography:
- China
628. The Role of the Renminbi in the World Economy
- Author:
- Fred Hu
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- As China's economy has continued its remarkable expansion and gained an increasingly important role in the global economy, China's currency, the renminbi (RMB), has also captured growing attention from investors and policymakers around the world. In this article, I briefly discuss three significant issues concerning the renminbi—namely, the near-term direction of the exchange rate, the renminbi's convertibility in the medium term, and the currency's international role down the road in the future.
- Political Geography:
- China
629. Lessons from Monetary and Real Exchange Rate Economics
- Author:
- Arnold C. Harberger
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article is intended to be a sort of flyover, examining certain key aspects of monetary and real exchange rate economics from a convenient distance. In it I try to avoid getting into technicalities that are interesting mainly to specialists. I focus instead on essentials that are critical to a proper understanding of the economic processes involved, and on a few real-world examples that show the usefulness and relevance of our fundamental theoretical constructs.
630. Monetary Stability, Exchange Rate Regimes, and Capital Controls: What Have We Learned?
- Author:
- Miranda Xafa
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Few topics in macroeconomics are as contentious as capital account liberalization and exchange rate regimes. This article attempts to briefly summarize what we have learned through the turbulent 1990s and the relatively benign 2000s. It is obviously not intended to review the massive literature on these topics, only to distill the main policy conclusions—or at least what I think are the main policy conclusions.
631. The Case for Price Stability with a Flexible Exchange Rate in the New Neoclassical Synthesis
- Author:
- Marvin Goodfriend
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The New Neoclassical Synthesis is a natural starting point for the consideration of welfare-maximizing monetary arrangements in the international context. Alternatively known as the New Keynesian model, this consensus model of monetary policy deserves our attention because it embodies cumulative advances in theory and policy informed by decades of monetary experience from around the world. The consensus model with its prescription for price stability serves today as the foundation for thinking about monetary policy at central banks and universities worldwide.
632. Monetary Policy and the Legacy of Milton Friedman
- Author:
- Anna J. Schwartz
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- So many well-deserved tributes have been paid to the memory of Milton Friedman that I propose to pay him tribute in a special way by talking about my long association with him. Before I do so, I note his activities before the 1950s, when we started working together. For the record, Friedman was not a monetarist when our collaboration began.
633. Milton Friedman and the Euro
- Author:
- Antonio Martino
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Milton Friedman did not like the euro. In early 1999 I wrote to him mentioning my daughter Erika's thesis and, in a letter dated March 12, 1999, he wrote back: Erika's thesis on “The Euro and the Dollar” is one of the subjects I have been maintaining a real interest in. As you know, I am very negative about the euro and I am very doubtful about how it will work out. However, I am less pessimistic about it now than I was earlier simply because I never expected that the various countries would display the kind of discipline that was required in order to qualify for the euro. The convergence in inflation rates, interest rates, and so on was greater and more rapid than I would have expected.
634. Friedman: Float or Fix?
- Author:
- Steve H. Hanke
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- With the passing of Milton Friedman on November 16, 2006, we lost one of the great champions of free markets. Friedman's obituaries and commentaries on his life's work and enormous influence have invariably mentioned his advocacy of floating exchange rates, leaving the impression that he always favored floating rates. This was not the case.
635. Milton Friedman and the Case against Currency Monopoly
- Author:
- George Selgin
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- A longstanding tradition in economics, dating back at least to Adam Smith, looks askance at statutory monopolies, condemning almost all of them as unnecessary barriers to economic progress. Thanks largely to this tradition most of the monopolies present in Smith's day are no longer tolerated. The few exceptions are found mainly in less developed countries, where they remain a cause of impoverishment. Needless to say, economists have also generally opposed the monopolization by fiat of undertakings that were already at least somewhat competitive in Smith's day.
636. The Federal Reserve's Role in the Great Contraction and the Subprime Crisis
- Author:
- Richard H. Timberlake
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Milton Friedman liked to recall that his experience with the Great Depression as a young man living in New York had a major effect on his career decision to study economics. So, we can count at least one good thing that came out of that tragic, unnecessary experience.
- Political Geography:
- New York
637. Economic Development and the Role of Currency Undervaluation
- Author:
- Surjit S. Bhalla
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article is concerned with the determinants of economic growth, and, in particular, with the role of policy in directing the pattern of growth in developing economies. Over the years, economists and policymakers have focused primarily on fiscal and exchange rate policy. While the role of fiscal deficits is well understood, the same agreement does not hold with regard to exchange rate policy.
638. Book Review: Freedom from Want: American Liberalism and the Global Economy by Edward Gresser
- Author:
- Daniel Griswold
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Trade policy has become a partisan affair in Washington. Major trade bills in Congress typically pit pro-trade Republicans backed by big business against trade-skeptic Democrats aligned with labor unions. And as the two major parties arm themselves for the 2008 general election, trade policy promises to provide one of the sharper contrasts between them.
- Political Geography:
- Washington
639. Book Review: The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives by Stephen T. Ziliak and Deirdre N. McCloskey
- Author:
- Peter Van Doren
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- How do many scientific disciplines estimate and report results? Practitioners estimate regression models or conduct difference-of means tests through experiments. And they report which results are significant and which are not (i.e., different from zero with 95 percent confidence). In this important book, Ziliak and McCloskey have three objectives: to remind us that such research may be mindless, unscientific, and costly; to explicate the intellectual history of significance testing and the struggles among those professors who developed sampling and statistical testing; and to illustrate the correct way to conduct research and praise those few who report their research properly.
640. Book Review: My Grandfather's Son by Clarence Thomas; Supreme Discomfort: The Divided Soul of Clarence Thomas by Kevin Merida and Michael A. Fletcher
- Author:
- Ilya Shapiro
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Whatever you think of his politics or jurisprudence, Clarence Thomas is a remarkable man. Born into desperate poverty in the Jim Crow South and raised by his illiterate grandfather, he would graduate from (and be completely disillusioned by) Yale Law School while battling personal and political demons that would have felled lesser mortals many times over. Now on the Supreme Court bench for over 15 years, Justice Thomas has established himself as a force to be reckoned with, a strong voice who has accepted and transcended his unfortunate notoriety.
641. Book Review: Rumsfeld's Wars: The Arrogance of Power by Dale R. Herspring
- Author:
- Ionut Popescu
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Donald Rumsfeld will go down in history as one of the worst secretaries of defense since the end of World War II. This is the conclusion reached by Dale Herspring, a political science professor at the University of Kansas, in a new book transparently titled Rumsfeld's Wars: The Arrogance of Power. Without much effort to give the former secretary any benefit of the doubt, Herspring blames him directly for causing our military to become “demoralized” and “broken.”
642. Book Review: World War IV: The Long Struggle against Islamofascism by Norman Podhoretz
- Author:
- Christopher Preble
- Publication Date:
- 03-2008
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- “9/11 constituted an open declaration of war on the United States and … the war into which it catapulted us was nothing less than another world war.” So says Norman Podhoretz in the opening passage of this alarmist, rambling screed. The enemy is Islamofascism, a “monster with two heads, one religious and the other secular.” This scourge, Podhoretz warns darkly, may be “even more dangerous and difficult to beat” than Nazi Germany or the Soviet Union.
- Political Geography:
- United States and Soviet Union
643. Executive Pay: Regulation vs. Market Competition
- Author:
- Ira T. Kay and Steven Van Putten
- Publication Date:
- 09-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- The economic slowdown and the active political season are generating calls for imposing new regulations on executive pay. The presidential candidates of the two major parties have lashed out at what they perceive to be excessive pay for certain executives or for corporate executives in general.
- Topic:
- Economics, Government, and Markets
644. Markets vs. Monopolies in Education: A Global Review of the Evidence
- Author:
- Andrew J. Coulson
- Publication Date:
- 09-2008
- Content Type:
- Working Paper
- Institution:
- The Cato Institute
- Abstract:
- Would large-scale, free-market reforms improve educational outcomes for American children? That question cannot be answered by looking at domestic evidence alone. Though innumerable “school choice” programs have been implemented around the United States, none has created a truly free and competitive education marketplace. Existing programs are too small, too restriction laden, or both. To understand how genuine market forces affect school performance, we must cast a wider net, surveying education systems from all over the globe. The present paper undertakes such a review, assessing the results of 25 years of international research comparing market and government provision of education, and explaining why these international experiences are relevant to the United States.
- Topic:
- Economics, Education, Government, and Markets
- Political Geography:
- United States
645. Global Imbalances, Tanking Dollar, and the IMF's Surveillance over Exchange Rate Policies
- Author:
- Sitikantha Pattanaik
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The exchange rate policies of the member countries of the International Monetary Fund could come under more intrusive scrutiny because of the June 15, 2007, decision of the IMF Executive Board on bilateral surveillance. This article highlights why the IMF decision cannot help in addressing the problem of global imbalances, even if it succeeds in delivering further appreciation of the exchange rates of surplus countries against the U.S. dollar. Moreover, there could be enormous challenges for effective implementation of the decision, which may further erode the credibility of the IMF. Even though disorderly correction of global imbalances remains a concern for every country, shifting the burden of adjustment entirely to surplus countries could have potentially damaging implications for international cooperation on global economic challenges. Past experiences of international cooperation to deal with global imbalances and currency misalignments suggest that countries rarely sacrifice their domestic economic priorities. Without appropriate macroeconomic adjustment measures, neither the high and growing U.S. current account deficit nor the savings glut of several surplus countries can be corrected solely by removing exchange rate misalignments.
- Political Geography:
- United States
646. Can Corruption Ever Improve an Economy?
- Author:
- Douglas A. Houston
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Many in the world of developmental economics believe that corruption, the circumvention of the rule of law for private gain, leads to nothing but woe for any nation's economy, under any circumstances. Transparency International makes the elimination of corruption their mission, and many large multinational firms today echo that goal by building ethical codes that prohibit employees from engaging in practices deemed corrupt, regardless of local attitudes and customs toward the practices. The World Bank makes curbing corruption a linchpin in their campaign to improve governance. Reasons given for blanket condemnation of corrupt behavior are often utilitarian: Corruption is expected to increase the economic costs of doing business by undermining the laws of the land; this, in turn, reduces productive activities and investments, with negative consequences unfolding for human development and economic growth.
- Topic:
- Corruption, Economics, and Government
647. Economic Freedom, Corruption, and Growth
- Author:
- Mushfiq us Swaleheen and Dean Stansel
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article adds to the empirical literature on the relationship between corruption and economic growth by incorporating the impact of economic freedom. We utilize an econometric model with two improvements on the previous literature: (1) our model accounts for the fact that economic growth, corruption, and investment are jointly determined, and (2) we include economic freedom explicitly as an explanatory variable. Using a panel of 60 countries, we find that for countries with low economic freedom (where individuals have limited economic choices), corruption reduces economic growth. However, in countries with high economic freedom, corruption is found to increase economic growth. Our results contradict the generally accepted view that corruption lowers the rate of growth. We use Osterfeld's (1992) distinction between expansive and restrictive corruption to explain our results. According to Osterfeld, corruption expands output if more bribes help the economy move toward greater free exchange. Thus, in economies where economic freedom is high, if bribing makes public officials less diligent in enforcing restrictions on firms' activities, output will increase. However, corruption will restrict output when bribes reduce competition and increase market rigidities. This outcome is more likely in countries where economic freedom is low due to widespread state ownership of assets (e.g., in China), monopolies and high tariff barriers granted to businesses owned by ruling elites and their cronies (e.g., the Philippines under Marcos and Indonesia under Suharto), and state-run marketing boards that are often the sole purchasers of agricultural products (e.g., in several African countries). An increase in corruption in these low economic freedom countries means even less competition and free exchange and leads to a fall in output. The policy implication of our finding is straightforward: The surest way to mitigate corruption and its adverse effects is to increase economic freedom.
- Political Geography:
- Africa
648. Government Behavior and Trust: The Case of China
- Author:
- Peihong Yang
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Social capital has become a critical term in the social sciences since Loury (1977) and Coleman's (1988) seminal studies. Coleman (1990) and Putnan, Leonardi, and Nanetti (1993) focus on the positive spillover effect of social capital. Fukuyama (1997) argues that only certain shared norms and values can be regarded as social capital. Putnan (2000), Ostrom (2000), and Bowles and Gintis (2002) highlight the network effect of social capital. All these studies demonstrate that trust is central to social capital.
- Political Geography:
- China
649. The Real Coase Theorems
- Author:
- Glenn Fox
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The “Coase theorem,” in one respect, is a triumph of social science scholarship. Web searches using “Coase theorem” as key words typically yield over 100,000 hits. Economists, legal scholars, environmentalists, and political scientists have written volumes on the theorem. Few ideas written by economists in the 20th century have been as widely debated. And the debating continues, 47 years after the publication of “The Problem of Social Cost” (Coase 1960), the essay recognized as the source of the ideas in question. There is only one problem: Ronald Coase maintains that the theorem that bears his name conveys an idea that is antithetical to the message that he intended.
650. Potential Gains from Trade in Dirty Industries: Revisiting Lawrence Summers' Memo
- Author:
- Jay Johnson, Gary Pecquet, and Leon Taylor
- Publication Date:
- 09-2007
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Lawrence Summers has a long history of controversial statements. Well before his comments in 2005 as then-president of Harvard University about the underrepresentation of women on faculties for mathematics and science, Summers was the chief economist at the World Bank. In that position, he penned a memo to his colleagues in 1991 that was leaked to the public, drawing heated criticism. In 1999, when President Bill Clinton nominated Summers as Secretary of the Treasury, the controversy over Summers' memo was revived during his Senate confirmation hearings. Hundreds of articles were posted on the Internet at that time attempting to sway public opinion against Summers.