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  • Author: Alan Reynolds
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Estimates of the elasticity of taxable income (ETI) investigate how high‐​income taxpayers faced with changes in marginal tax rates respond in ways that reduce expected revenue from higher tax rates, or raise more than expected from lower tax rates. Diamond and Saez (2011) pioneered the use of a statistical formula, which Saez developed, to convert an ETI estimate into a revenue‐​maximizing (“socially optimal”) top tax rate. For the United States, they found that the optimal top rate was about 73 percent when combining the marginal tax rates on income, payrolls, and sales at the federal, state, and local levels. A related paper by Piketty, Saez, and Stantcheva (2014) concluded that, at the highest income levels, the ETI was so small that comparable top tax rates as high as 83 percent could maximize short‐​term revenues, supposedly without suppressing long‐​term economic growth. Such studies could be viewed as part of a larger effort to minimize any efficiency costs of distortive taxation while maximizing assumed revenue gains and redistributive benefits.
  • Topic: Economics, History, Tax Systems, High-Income People
  • Political Geography: North America, Global Focus, United States of America
  • Author: Isabella M. Pesavento
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Adoption, particularly adoption out of foster care, has not been well studied within the field of economics. Researchers may avoid this topic because the adoption market greatly deviates from a typical market, and the system and data collection are highly fragmented, with relatively little federal coordination. Rubin et al. (2007) and Thornberry et al. (1999) show that instability in foster care placements produces negative welfare outcomes, and Hansen (2006), Barth et al. (2006), and Zill (2011) demonstrate that adoption out of foster care is socially and financially beneficial. Yet, children waiting to be adopted out of foster care are in excess supply, which has been exacerbated in recent years. I hypothesize that this is, in part, due to misaligned incentives of government officials and the contracted foster care agencies. I show that earnings are prioritized over ensuring permanent child placement, which hinders the potential for adoption, and government oversight fails to correct such iniquities because of career interests.
  • Topic: Economics, Government, Markets, Children, Incentives, Foster Care, Adoption
  • Political Geography: North America, United States of America
  • Author: Tanner Corley, Marcus M. Witcher
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In Arkansas, the barber profession has been regulated and licensed for more than 80 years, and until recently, the issue was mostly absent from the political debate. During a regular session of Arkansas’s 92nd General Assembly in 2019, however, state Sen. John Cooper presented a bill to “repeal the [1937] Arkansas Barber Law” and to “abolish the State Board of Barber Examiners” (Briggs 2019). The average Arkansan probably was not aware of the bill, but occupational licensing reformers saw this as a great opportunity for Arkansas to pave the way for other states to reform their own license laws. If Cooper’s bill had passed, Arkansas’s economy would have likely benefited (Timmons and Thornton 2010, 2018). By removing restrictive requirements to becoming a barber, the bill would have allowed more Arkansans to enter the profession. This reform would have ­provided people with more economic opportunities, increased competition, and benefited consumers.
  • Topic: Regulation, Business , Public Health, Licensing
  • Political Geography: North America, United States of America
  • Author: Scott Lincicome
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Labor market and cultural disruptions in the United States are real and important, as is China’s current and unfortunate turn toward illiberalism and empire. But pretending today that there was a better trade policy choice in 2000—when Congress granted China “permanent normal trade relations” (PNTR) status and paved the way for broader engagement—is misguided. It assumes too much, ignores too much, and demands too much. Worse, it could lead to truly bad governance: increasing U.S. protectionism; forgiving the real and important failures of our policymakers, CEOs, and unions over the last two decades; and preventing a political consensus for real policy solutions. Indeed, that is happening now.
  • Topic: International Relations, Economics, Markets, Bilateral Relations, Trade, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: John A. Allison
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Covid‐​19 pandemic greatly increased the scope and power of the Federal Reserve. The Fed created a number of new emergency lending facilities, which allowed it to make off‐​balance sheet loans and buy the debt of corporations and municipalities through special purpose vehicles backstopped by the Treasury under the CARES Act. Meanwhile, the Fed’s large‐​scale asset purchase program, known as quantitative easing (QE), was put on steroids after the pandemic struck in March 2020. The Fed has been purchasing longer‐​term Treasuries and mortgage‐​backed securities amounting to $120 billion per month, pushing the size of its balance sheet to an astonishing $7 trillion.
  • Topic: Economics, Monetary Policy, Federal Reserve, Pandemic, COVID-19
  • Political Geography: North America, United States of America
  • Author: Michael J. Casey
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: For all the upheaval of 2020, it’s perhaps not surprising that the 50‐​year anniversary of a major piece of financial legislation came and went with little fanfare. But the 1970 U.S. Bank Secrecy Act (BSA) deserves much scrutiny.1 In mandating that financial institutions maintain customer identity records and report illicit activity to government agencies, the BSA was a landmark statute by any measure. It paved the way to an ever‐​expanding system of international surveillance that’s a cornerstone of U.S. economic power.
  • Topic: Economics, Government, Finance, Surveillance
  • Political Geography: North America, United States of America
  • Author: Caitlin Long
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Stablecoins are financial obligations issued on a blockchain. They are generally fully collateralized with either fiat currency deposits at a bank, or with short‐​term government bonds held at a custodian. They’re issued only by nonbanks, although FINMA in Switzerland does allow Swiss banks to issue Swiss franc–denominated stablecoins. Usually stablecoins do not pay interest, and they are designed to trade at par with the fiat currency. Because they are issued on a blockchain, they usually settle in minutes, with irreversibility, and — critically — they are “programmable,” which means users can build their own software applications to interact with them.
  • Topic: Monetary Policy, Banks, Digital Currency
  • Political Geography: Global Focus, United States of America
  • Author: Jeb Hensarling, Phil Gramm, John B. Taylor
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Fed’s huge balance sheet allows it to engage in credit policy (the composition of the balance sheet is by definition credit policy), which inherently auto‐​resides in fiscal policy — but should auto‐​reside with Congress. This discussion, moderated by John B. Taylor, took place at the Cato Institute’s 38th Annual Monetary Conference on November 19, 2020. The transcript has been edited for publication.
  • Topic: Economics, Monetary Policy, Federal Reserve, Credit
  • Political Geography: North America, United States of America
  • Author: A. Trevor Thrall, Erik Goepner
  • Publication Date: 03-2021
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Observers of American foreign policy have been worried for years about eroding public support for international engagement, especially in light of increasing public discontent after nearly two decades of military conflict since 9/11. Low support for international engagement and military intervention among younger Americans, in particular, has led some to worry that the age of American internationalism has passed. There is little agreement, however, about how serious the erosion of public support is and what its causes are. Relying on an analysis of seven decades of polling data, we argue that generational effects have slowly reshaped patterns of American foreign policy preferences. Since World War II, Americans have come of age during periods increasingly less conducive to support of military intervention, leading them to adopt worldviews increasingly at odds with those carried by older Americans. As a result, the United States is undergoing a slow motion changing of the guard, as older and more hawkish Americans die and are replaced by younger, less hawkish ones. These findings have important implications for the debate about the state of public support for American leadership of the liberal international order and the evolution of American foreign policy.
  • Topic: Foreign Policy, Engagement , International Order, Generation
  • Political Geography: North America, United States of America
  • Author: Scott Lincicome, Huan Zhu
  • Publication Date: 06-2021
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: In the wake of the COVID-19 pandemic and rising U.S.-China tensions, American policymakers have again embraced “industrial policy.” Both President Biden and his predecessor, as well as legislators from both parties, have advocated a range of federal support for American manufacturers to fix perceived weaknesses in the U.S. economy and to counter China’s growing economic clout. These and other industrial policy advocates, however, routinely leave unanswered important questions about U.S. industrial policy’s efficacy and necessity: What is “Industrial Policy”? Advocates of “industrial policy” often fail to define the term, thus permitting them to ignore past failures and embrace false successes while preventing a legitimate assessment of industrial policies’ costs and benefits. Yet U.S. industrial policy’s history of debate and implementation establishes several requisite elements – elements that reveal most “industrial policy successes” not to be “industrial policy” at all. What are the common obstacles to effective U.S. industrial policy? Several obstacles have prevented U.S. industrial policies from generating better outcomes than the market. This includes legislators’ and bureaucrats’ inability to “pick winners” and efficiently allocate public resources (Hayek’s “Knowledge Problem”); factors inherent in the U.S. political system (Public Choice Theory); lack of discipline regarding scope, duration, and budgetary costs; interaction with other government policies that distort the market at issue; and substantial unseen costs. What “problem” will industrial policy solve? The most common problems purportedly solved by industrial policy proposals are less serious than advocates claim or unfixable via industrial policy. This includes allegations of widespread U.S. “deindustrialization” and a broader decline in American innovation; the disappearance of “good jobs”; the erosion of middle‐​class living standards; and the destruction of American communities. Do other countries’ industrial policies demand U.S. industrial policy? The experiences of other countries generally cannot justify U.S. industrial policy because countries have different economic and political systems. Regardless, industrial policy successes abroad – for example, in Japan, Korea and Taiwan – are exaggerated. Also, China’s economic growth and industrial policies do not justify similar U.S. policies, considering the market‐​based reasons for China’s rise, the Chinese policies’ immense costs, and the systemic challenges that could derail China’s future growth and geopolitical influence. These answers argue strongly against a new U.S. embrace of industrial policy. The United States undoubtedly faces economic and geopolitical challenges, including ones related to China, but the solution lies not in copying China’s top‐​down economic planning. Reality, in fact, argues much the opposite.
  • Topic: Government, Industrial Policy, Manufacturing, COVID-19
  • Political Geography: China, Asia, North America, United States of America
  • Author: Scott Lincicome
  • Publication Date: 01-2021
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: Both the American left and right often use “national security” to justify sweeping proposals for new U.S. protectionism and industrial policy. “Free markets” and a lack of government support for the manufacturing sector are alleged to have crippled the U.S. defense industrial base’s ability to supply “essential” goods during war or other emergencies, thus imperiling national security and demanding a fundamental rethink of U.S. trade and manufacturing policy. The COVID-19 crisis and U.S.-China tensions have amplified these claims. This resurgent “security nationalism,” however, extends far beyond the limited theoretical scenarios in which national security might justify government action, and it suffers from several flaws. First, reports of the demise of the U.S. manufacturing sector are exaggerated. Although U.S. manufacturing sector employment and share of national economic output (gross domestic product) have declined, these data are mostly irrelevant to national security and reflect macroeconomic trends affecting many other countries. By contrast, the most relevant data—on the U.S. manufacturing sector’s output, exports, financial performance, and investment—show that the nation’s total productive capacity and most of the industries typically associated with “national security” are still expanding. Second, “security nationalism” assumes a need for broad and novel U.S. government interventions while ignoring the targeted federal policies intended to support the defense industrial base. In fact, many U.S. laws already authorize the federal government to support or protect discrete U.S. industries on national security grounds. Third, several of these laws and policies provide a cautionary tale regarding the inefficacy of certain core “security nationalist” priorities. Case studies of past government support for steel, shipbuilding, semiconductors, and machine tools show that security‐​related protectionism and industrial policy in the United States often undermines national security. Fourth, although the United States is not nearly as open (and thus allegedly “vulnerable”) to external shocks as claimed, global integration and trade openness often bolster U.S. national security by encouraging peace among trading nations or mitigating the impact of domestic shocks. Together, these points rebut the most common claims in support of “security nationalism” and show why skepticism of such initiatives is necessary when national security is involved. They also reveal market‐​oriented trade, immigration, tax, and regulatory policies that would generally benefit the U.S. economy while also supporting the defense industrial base and national security.
  • Topic: Defense Policy, National Security, COVID-19, Free Market, Deindustrialization
  • Political Geography: China, North America, United States of America
  • Author: Alex Nowrasteh
  • Publication Date: 02-2021
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: A cost‐​benefit analysis finds that the hazards posed by foreign‐​born spies are not large enough to warrant broad and costly actions such as a ban on travel and immigration from China, but they do warrant the continued exclusion of potential spies under current laws. Espionage poses a threat to national security and the private property rights of Americans. The government should address the threat of espionage in a manner whereby the benefits of government actions taken to reduce it outweigh the costs of those actions. To aid in that goal, this policy analysis presents the first combined database of all identified spies who targeted both the U.S. government and private organizations on U.S. soil. This analysis identifies 1,485 spies on American soil who, from 1990 through the end of 2019, conducted state or commercial espionage. Of those, 890 were foreign‐​born, 583 were native‐​born Americans, and 12 had unknown origins. The scale and scope of espionage have major implications for immigration policy, as a disproportionate number of the identified spies were foreign‐​born. Native‐​born Americans accounted for 39.3 percent of all spies, foreign‐​born spies accounted for 59.9 percent, and spies of unknown origins accounted for 0.8 percent. Spies who were born in China, Mexico, Iran, Taiwan, and Russia account for 34.7 percent of all spies. The chance that a native‐​born American committed espionage or an espionage‐​related crime and was identified was about 1 in 13.1 million per year from 1990 to 2019. The annual chance that a foreign‐​born person in the United States committed an espionage‐​related crime and was discovered doing so was about 1 in 2.2 million during that time. The government was the victim in 83.3 percent of espionage cases, firms were the victims of commercial espionage in 16.3 percent of the cases, and hospitals and universities were the victims of espionage in 0.1 percent and 0.3 percent of the cases, respectively. The federal government should continue to exclude foreign‐​born individuals from entering the United States if they pose a threat to the national security and private property rights of Americans through espionage. A cost‐​benefit analysis finds that the hazards posed by foreign‐​born spies are not large enough to warrant broad and costly actions such as a ban on travel and immigration from China, but they do warrant the continued exclusion of potential spies under current laws.
  • Topic: Crime, Immigration, Risk, Espionage
  • Political Geography: North America, United States of America
  • Author: Scott Lincicome, Inu Manak
  • Publication Date: 03-2021
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: With several Section 232 tariffs still in place, and the status of other investigations unclear, the law presents an early test for the Biden administration and a signal about its future trade policy plans. President Biden took office at the height of modern American protectionism. The trade policy legacy he inherited from the Trump administration puts the United States at a crossroads. Will Biden go down the problematic path of executive overreach like his predecessor, or will he forge a new path? We may not need to wait long to find out. In his first trade action, President Biden reinstated tariffs on aluminum from the United Arab Emirates under Section 232 of the Trade Expansion Act of 1962, which authorizes the president to impose tariffs when a certain product is “being imported into the United States in such quantities or under such circumstances as to threaten to impair national security.” Though infrequently used in the past, Section 232 was a favored trade tool of the Trump administration, which was responsible for nearly a quarter of all Section 232 investigations initiated since 1962. While Congress has constitutional authority over trade policy, Section 232 gives the president broad discretion to enact protectionist measures in the name of national security. Why is this law a problem? First, the statute’s lack of an objective definition of “national security” permits essentially anything to be considered a threat, regardless of the merits. Second, the law’s lack of detailed procedural requirements encouraged the Trump administration to cut corners in applying the law, thus breeding cronyism and confusion. Third, President Trump took advantage of the law’s ambiguity to shield key Section 232 findings from Congress and the public, undermining both transparency and accountability. The Trump administration’s abuse of the rarely used Section 232 has allowed the statute to become an excuse for blatant commercial protectionism, harming American companies and consumers and our security interests. It’s unclear whether the Biden administration will continue this troubling trend or seek reform. The best course of action would be the latter: Biden should avoid using Section 232 and support congressional efforts to rein in presidential power, thus ensuring an end to the calamitous episodes that were common during the Trump era.
  • Topic: National Security, Trade Policy, Protectionism
  • Political Geography: North America, United States of America
  • Author: Neal McCluskey
  • Publication Date: 04-2021
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: In one year, COVID-19 contributed to the permanent closure of at least 132 mainly low‐​cost private schools. But that was better than some feared. As COVID-19 struck the United States in March 2020, sending the nation into lockdown, worry about the fate of private schools was high. These schools, which only survive if people can pay for them, seemed to face deep trouble. Many private schools have thin financial margins even in good economic times and rely not only on tuition but also on fundraisers, such as in‐​person auctions, to make ends meet. When the pandemic hit, many such events were canceled, and churches no longer met in person, threatening contributions that help support some private schools. Simultaneously, many private schooling families faced tighter finances, making private schooling less affordable. Finally, families that could still afford private schooling might have concluded that continuing to pay for education that was going to be online‐​only made little sense.
  • Topic: Education, COVID-19, Private Schools
  • Political Geography: North America, United States of America
  • Author: John Mueller
  • Publication Date: 05-2021
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: China, even if it rises, does not present much of a security threat to the United States. Policymakers increasingly view China’s rapidly growing wealth as a threat. China currently ranks second, or perhaps even first, in the world in gross domestic product (although 78th in per capita GDP), and the fear is that China will acquire military prowess commensurate with its wealth and feel impelled to carry out undesirable military adventures. However, even if it continues to rise, China does not present much of a security threat to the United States. China does not harbor Hitler‐​style ambitions of extensive conquest, and the Chinese government depends on the world economy for development and the consequent acquiescence of the Chinese people. Armed conflict would be extremely—even overwhelmingly—costly to the country and, in particular, to the regime in charge. Indeed, there is a danger of making China into a threat by treating it as such and by engaging in so‐​called balancing efforts against it. Rather than rising to anything that could be conceived to be “dominance,” China could decline into substantial economic stagnation. It faces many problems, including endemic (and perhaps intractable) corruption, environmental devastation, slowing growth, a rapidly aging population, enormous overproduction, increasing debt, and restive minorities in its west and in Hong Kong. At a time when it should be liberalizing its economy, Xi Jinping’s China increasingly restricts speech and privileges control by the antiquated and kleptocratic Communist Party over economic growth. And entrenched elites are well placed to block reform. That said, China’s standard of living is now the highest in its history, and it’s very easy to envision conditions that are a great deal worse than life under a stable, if increasingly authoritarian, kleptocracy. As a result, the Chinese people may be willing to ride with, and ride out, economic stagnation should that come about—although this might be accompanied by increasing dismay and disgruntlement. In either case—rise or demise—there is little the United States or other countries can or should do to affect China’s economically foolish authoritarian drive except to issue declarations of disapproval and to deal more warily. As former ambassador Chas Freeman puts it, “There is no military answer to a grand strategy built on a non‐​violent expansion of commerce and navigation.” And Chinese leaders have plenty of problems to consume their attention. They scarcely need war or foreign military adventurism to enhance the mix. The problem is not so much that China is a threat but that it is deeply insecure. Policies of threat, balance, sanction, boycott, and critique are more likely to reinforce that condition than change it. The alternative is to wait, and to profit from China’s economic size to the degree possible, until someday China feels secure enough to reform itself.
  • Topic: Government, GDP, Geopolitics, Economic Growth
  • Political Geography: China, Asia, United States of America
  • Author: Steve H. Hanke
  • Publication Date: 06-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Monetary instability poses a threat to free societies. Indeed, currency instability, banking crises, soaring inflation, sovereign debt defaults, and economic booms and busts all have a common source: monetary instability. Furthermore, all these ills induced by monetary instability bring with them calls for policy changes, many of which threaten free societies. One who understood this simple fact was Karl Schiller, who was the German Finance Minister from 1966 until 1972. Schiller’s mantra was clear and uncompromising: “Stability is not everything, but without stability, everything is nothing” (Marsh 1992: 30). Well, Schiller’s mantra is my mantra. I offer three regime changes that would enhance the stability in what Jacques de Larosière (2014) has asserted is an international monetary “anti-system.” First, the U.S. dollar and the euro should be formally, loosely linked together. Second, most central banks in developing countries should be mothballed and replaced by currency boards. Third, private currency boards should be permitted to enter the international monetary sphere.
  • Topic: Debt, Foreign Exchange, Monetary Policy, Developing World, Inflation, Currency
  • Political Geography: Europe, United States of America, European Union
  • Author: Michael D Bordo, Mickey D. Levy
  • Publication Date: 01-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The ratcheting up of tariffs and the Fed’s discretionary conduct of monetary policy are a toxic mix for economic performance. Escalating tariffs and President Trump’s erratic and unpredictable trade policy and threats are harming global economic performance, distorting monetary policy, and undermining the Fed’s credibility and independence. President Trump’s objectives to force China to open access to its markets for international trade, reduce capital controls, modify unfair treatment of intellectual property, and address cybersecurity issues and other U.S. national security issues are laudable goals with sizable benefits. However, the costs of escalating tariffs are mounting, and the tactic of relying exclusively on barriers to trade and protectionism is misguided and potentially dangerous. The economic costs to the United States so far have been relatively modest, dampening exports, industrial production, and business investment. However, the tariffs and policy uncertainties have had a significantly larger impact on China, accentuating its structural economic slowdown, and are disrupting and distorting global supply chains. This is harming other nations that have significant exposure to international trade and investment overseas, particularly Japan, South Korea, and Germany. As a result, global trade volumes and industrial production are falling. Weaker global growth is reflected in a combination of a reduction in aggregate demand and constraints on aggregate supply.
  • Topic: International Trade and Finance, Monetary Policy, Economic Growth, Tariffs, Industry
  • Political Geography: Japan, China, Europe, Asia, South Korea, Germany, North America, United States of America
  • Author: Simon Lester, Huan Zhu
  • Publication Date: 01-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Donald Trump was a trade “hawk” long before he became president. In the late 1980s, he went on the Oprah Winfrey show and complained about Japan “beating the hell out of this country” on trade (Real Clear Politics 2019). As president, he has continued with the same rhetoric, using it against a wide range of U.S. trading partners, and he has followed it up with action (often in the form of tariffs). While many countries have found themselves threatened by Trump’s aggressive trade policy, his main focus has been China. As a result, the United States and China have been engaged in an escalating tariff, trade, and national security conflict since July 2018, when the first set of U.S. tariffs on China went into effect and China retaliated with tariffs of its own. In this article, we explore the U.S.-China economic conflict, from its origins to the trade war as it stands today. We then offer our thoughts on where this conflict is heading and when it might end.
  • Topic: Economics, International Trade and Finance, Tariffs, Trade Wars, Donald Trump
  • Political Geography: China, Asia, North America, United States of America
  • Author: James A. Dorn
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: atching the frenzy surrounding Judy Shelton’s confirmation hearing before the Senate Banking Committee on February 13, one is led to believe that the gold standard is a “nutty” idea, for which no serious economist or monetary policymaker could possibly have a kind word (see U.S. Senate 2020). This article critiques that wholesale refutation of the gold standard. In recent years (as well as in the past), both serious economists and reputable monetary policymakers have recognized the benefits of a gold standard in reducing regime uncertainty and promoting monetary and social order. Whatever one may think of President Trump’s recent Fed picks, the gold standard itself deserves more respect than it’s been getting.
  • Topic: Monetary Policy, Federal Reserve, Finance, Gold Standard
  • Political Geography: Global Focus, United States of America
  • Author: J. Robert Subrick
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: After the Second World War, the entrepreneur virtually disappeared from economic analysis (Baumol 1968). This neglect followed from the emerging models of general equilibrium that formed one aspect of the core of economic theory. By assumption, the Walrasian auctioneer knew the appropriate prices necessary to equate quantity supplied with quantity demanded in each market. In addition, the auctioneer knew when and by how much to adjust prices when an exogenous factor changed such as income or production technology. Trade only occurred at equilibrium prices so that markets cleared. No market participant chose or changed prices; it occurred exogenously. Kenneth Arrow recognized the lack of real world mechanisms to determine and adjust prices in competitive markets. He identified a logical gap in the perfectly competitive model. He wrote that “there is no place for a rational decision with respect to prices as there is with respect to quantities” (Arrow 1959: 42). Prices exist independent of consumer and firm behavior. A complete model would have to provide a solution to the conundrum.
  • Topic: Markets, History, Entrepreneurship, Economy
  • Political Geography: North America, United States of America
  • Author: Ted Galen Carpenter
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: In the decades since the founding of the People’s Republic of China (PRC) in 1949, wild swings have occurred in the way that American media outlets view that country. At most times, a herd mentality is evident, as a large percentage of news stories portray China in one particular fashion, although there always are some dissenters from the dominant narrative. The nature of that narrative sometimes shifts rapidly and dramatically, however. During some periods, the prevailing perspective has been extremely hostile, with nearly all accounts seeing the PRC as a monstrous oppressor domestically and an existential security threat to the United States. That was the case for more than two decades following the communist revolution, until Richard Nixon’s administration suddenly altered U.S. policy in 1971–1972, and Washington no longer treated the PRC as a rogue state.
  • Topic: Security, Foreign Policy, Public Opinion, Media, Economy
  • Political Geography: China, Asia, North America, United States of America
  • Author: Simon Lester
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Most Americans will agree that the Chinese government has behaved badly in a number of ways, although they may not agree on exactly which Chinese government behavior is a problem. Perhaps it’s the treatment of ethnic or religious minorities, such as the Uighurs or Tibetans or Christians; maybe it’s the crackdown on protests in Hong Kong and failure to uphold the “one country, two systems” principle; or assertiveness in territorial disputes; or censorship; or protectionist trade practices; or intellectual property theft; or cyber‐​hacking; or spying; or most recently, being slow to disclose the emergence of the coronavirus and engaging in a propaganda war regarding who is at fault. It’s a long list, and everyone has their own priorities. But while there is loose agreement on the existence of a problem, there is great difficulty in coming up with an appropriate response. What can or should the United States government do about any of this? Is it possible to change the behavior of other governments? Is the U.S. government in a position to do it? Is it appropriate to do so?
  • Topic: Foreign Policy, Human Rights, Bilateral Relations, Trade
  • Political Geography: China, Asia, North America, United States of America
  • Author: Axel Kaiser
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Following the failed Marxist experiment of Chilean President Salvador Allende, a free‐​market revolution led by the so‐​called Chicago Boys in the 1970s and 1980s created the conditions necessary for the country to experience an “economic miracle” that captured worldwide attention.1 As Nobel laureate economist Gary Becker (1997) put it, Chile became “an economic role model for the whole underdeveloped world.” This performance, said Becker, “became still more impressive when the government was transformed into a democracy.” Along the same lines, Nobel laureate economist Paul Krugman argued that the reforms introduced by the Chicago Boys “proved highly successful and were preserved intact when Chile finally returned to democracy in 1989” (Krugman 2008: 31). Indeed, from 1990 to 2010 a left‐​wing coalition called “Concertación” came to power. Despite having been comprised of opponents to the military dictatorship and by many former members of Salvador Allende’s government, Concertación kept in place the foundations of the free‐​market system. A pragmatic view prevailed, leading to the recognition and adoption of the economic legacy of the Pinochet years.
  • Topic: Economics, Reform, Neoliberalism, Ideology, Crisis Management, Transparency, Free Market
  • Political Geography: South America, Chile, United States of America
  • Author: Meg Tuszynski, Dean Stansel
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Some immigration opponents claim that immigrants import bad institutions and policies from their country of origin into their new home country. We argue just the opposite—namely, that immigrants are more likely to self‐​select into countries with better institutions than those in their home countries. Researchers have examined this issue in both a cross‐​country and within‐​country context. Their findings have been mixed. Although others have found small or nonexistent impacts of immigrants on state institutions, those papers assume that all immigrants are the same. Our approach is unique in that it divides immigrant populations in a variety of ways. We build on the previous literature that examines the relationship between immigration and institutions at the state level, where there are smaller inherent differences in economic institutions (compared to differences across countries). We do so by incorporating the regional diversity of immigrant populations, examining whether immigrants’ countries of origin matter for economic outcomes in their new home country. Controlling for the diversity of immigrant populations in a way that previous researchers have not done improves our ability to assess immigration opponents’ claims that immigrants from economically worse‐​off countries hurt U.S. economic institutions. We find virtually no evidence of an economically and statistically significant relationship between the levels of immigration we have experienced in recent decades and a decline in economic institutions in the United States, regardless of the region or economic conditions of recent immigrants’ home countries. The limited statistically significant evidence we do find is mixed and small in magnitude. Thus, one of the key rationales used to call for immigration restrictions is not supported by our findings.
  • Topic: Immigration, Institutions, Macroeconomics
  • Political Geography: North America, Global Focus, United States of America
  • Author: Diego Zuluaga
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Financial transactions taxes (FTTs) have become increasingly popular since the 2008 financial crisis. During the 2020 Democratic presidential primary race, FTTs featured prominently on the platforms of both moderate Michael Bloomberg and socialist Bernie Sanders. The likely nominee, Joe Biden, has also expressed support for an FTT, albeit without offering any details in his election platform.
  • Topic: Financial Crisis, Finance, Domestic politics, Tax Systems, Transactions
  • Political Geography: North America, United States of America
  • Author: Esther L. George
  • Publication Date: 10-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Iappreciate this opportunity to pay tribute to Marvin Goodfriend and his many contributions to the theory and practice of monetary policy. At the Kansas City Fed, we knew Marvin as a scholar and a good Federal Reserve colleague. Marvin also was a participant in a number of our Jackson Hole Economic Symposiums. As a Research Officer at the Richmond Fed, he attended the first symposium that we held in Jackson Hole, Wyoming, in 1982, where his work on “Discount Window Borrowing, Monetary Control, and the Post‐​October 6, 1979 Federal Reserve Operating Procedure” was widely cited.1 Thirty‐​four years later in 2016, as a professor at Carnegie Mellon, he presented a paper making the case for deeply negative interest rates as a policy tool that could breach the zero lower bound on nominal rates. He argued that “the zero interest bound encumbrance on monetary policy should be removed so that movements in the intertemporal terms of trade can be reflected fully in interest rate policy to sustain price stability and full employment with a minimum of inefficient and costly alternative policies” (Goodfriend 2016; 128; emphasis added).
  • Topic: Monetary Policy, Finance, Interest Rates, Credit
  • Political Geography: Global Focus, United States of America
  • Author: Alex Nowrasteh, Andrew C. Forrester, Michelangelo Landgrave
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Donald J. Trump launched his candidacy for the Republican presidential nomination in June 2015 by comments on illegal immigrants and the crime they commit in the United States. “When Mexico sends its people, they’re not sending their best. They’re not sending you. They’re not sending you,” he said. “They’re sending people that have lots of problems and they’re bringing those problems with us. They’re bringing drugs, they’re bringing crime, they’re rapists, and some, I assume, are good people.” A few weeks after Trump’s announcement, 32‐​year‐​old Kate Steinle was shot and killed by an illegal immigrant Jose Inez Garcıa Zarate in San Francisco, California. Although Zarate was later acquitted of all murder and manslaughter charges due to mistakes made by the prosecutor, his shooting of Steinle seemed to support Trump’s worry about illegal immigrants causing a crime spree and helped win him the election in 2016.
  • Topic: Crime, Immigration, Border Control
  • Political Geography: North America, Texas, United States of America
  • Author: Alex Nowrasteh, Andrew C. Forrester
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: Freer immigration could potentially lead to trillions of dollars in additional annual global output. However, the movement of many more immigrants could produce negative externalities that swamp the benefits, particularly if immigrants undermine productivity in their new countries by bringing with them the institutions or cultures that are responsible for low productivity in their home countries. We examine this by seeing how immigrants affect state budgets — a proxy for the quality of economic institutions — between 1970 and 2010 in the United States. We find that larger immigrant shares of the population produce large reductions in the growth of real per capita tax revenue and outlays in the short run that moderate to smaller longer‐​term growth declines in both.
  • Topic: Immigration, Economy, Immigrants, Tax Systems, Institutions, Revenue Management
  • Political Geography: North America, United States of America
  • Author: Jay Schweikert
  • Publication Date: 09-2020
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: Qualified immunity is a judicial doctrine that protects public officials from liability, even when they break the law. The doctrine has no valid legal basis, it regularly denies justice to victims whose rights have been violated, and it severely undermines official accountability, especially for members of law enforcement. Accountability is an absolute necessity for meaningful criminal justice reform, and any attempt to provide greater accountability must confront the doctrine of qualified immunity. This judicial doctrine, invented by the Supreme Court in the 1960s, protects state and local officials from liability, even when they act unlawfully, so long as their actions do not violate “clearly established law.” In practice, this legal standard is a huge hurdle for civil rights plaintiffs because it generally requires them to identify not just a clear legal rule but a prior case with functionally identical facts.
  • Topic: Law, Reform, Criminal Justice, Accountability, Police, Qualified Immunity
  • Political Geography: North America, United States of America
  • Author: Claire Farley
  • Publication Date: 12-2020
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: In December 2019, Congress established the U.S. Space Force as an independent uniformed military service within the Department of the Air Force. Although many defense analysts had long argued for a reorganization of the Department of Defense’s space capabilities, few had settled on this particular solution. This policy analysis evaluates the reasoning behind the Space Force’s establishment, concluding that the service’s creation is premature. The Space Force is the first new independent U.S. service since the creation of the Air Force in 1947. At its inception, the Air Force had hundreds of thousands of personnel, several years of battle experience, a coherent body of doctrine, and a robust organizational culture. Even so, the creation of the Air Force sparked bitter interservice conflict for the first decade of its existence. However, the Space Force lacks a strong institutional basis, an identifiable organizational culture, and an established foundation of strategic theory. In the short term, it runs the risk of disrupting existing procedures and relationships that enable the U.S. military to function. In the long term, it runs the risk of distorting the procurement and force structure of U.S. space capabilities.
  • Topic: Science and Technology, Armed Forces, Military Affairs, Space Force
  • Political Geography: North America, United States of America
  • Author: Jeffrey Miron
  • Publication Date: 12-2020
  • Content Type: Commentary and Analysis
  • Institution: The Cato Institute
  • Abstract: Policymakers must do something to slow the growing debt burden or else face a major fiscal meltdown. Proposals such as Medicare for All and the Green New Deal would only make the looming fiscal crisis worse. Before COVID-19, the U.S. debt burden was large and on an unsustainable path under reasonable assumptions about economic fundamentals. Standard policy responses, such as higher taxes or lower discretionary spending, could not substantially slow the growth of the U.S. debt burden; only reduced growth in entitlement spending, especially on Medicare, had the potential to avoid eventual fiscal default. COVID-19, the ensuing recession, and the subsequent policy responses have all increased U.S. deficits substantially, potentially altering these conclusions. But these events are likely to be temporary and may be partially offset by other demographic and economic changes related to COVID-19. As a result, the pandemic did not substantially alter the projected path of the U.S. fiscal imbalance. That bit of good news does not alter the grim long‐​term U.S. fiscal outlook. The most effective way to slow the growth of the debt burden is to cut entitlement spending substantially.
  • Topic: Debt, Tax Systems, Fiscal Policy, COVID-19, Fiscal Deficit
  • Political Geography: North America, United States of America