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1. GameStop and the Rise of Retail Trading

Author:
Jennifer J. Schulp
Publication Date:
10-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In January 2021, a curious event in the stock market caught the attention of the media, regulators, and the public. A well‐​known struggling company dominated the headlines, not for its business model, but for the meteoric rise of its stock price. GameStop Corp. started the year trading around $19.00 a share, a pretty robust share price for a company that had been trading below $5.00 as recently as August 2020. Yet, by the end of January, GameStop’s shares were trading at over $300, at one point hitting a high of $483. GameStop’s stock price has receded from those meteoric highs, but, as of late May, it continues to trade between $160 and $180 a share.
Topic:
Markets, Economy, Investment, Stock Markets, and Equity
Political Geography:
Global Focus

2. The Impact of Public Debt on Economic Growth

Author:
Jack Salmon
Publication Date:
10-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Following the 2007–2008 global financial crisis (GFC) and subsequent sovereign debt crisis in Europe, there has been a renewed interest in exploring the relationship between government debt and economic growth. One of the cornerstone studies on the subject that triggered an emergence of new literature was Carmen Reinhart and Kenneth Rogoff’s “Growth in a Time of Debt” (2010), which became widely cited and influential among commentators, academics, and policymakers in the debate surrounding austerity and fiscal policy in debt‐​burdened economies. Much of the research that followed the GFC uses panel data analysis of the debt‐​growth nexus using datasets from the World Bank, International Monetary Fund (IMF), European Commission, and Organisation for Economic Co‐​operation and Development (OECD).
Topic:
Economy, Economic Growth, Survey, and Public Debt
Political Geography:
Global Focus

3. Should the State or the Market Provide Digital Currency?

Author:
Lawrence H. White
Publication Date:
06-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Private commercial banks have been providing trusted money to the public for hundreds of years, in the form of banknotes (where allowed) and transferable deposit balances, as an integral part of their business model. Economically, money balances are a private good: they are rival in consumption (you and I can’t both simultaneously spend a given banknote or deposit balance) and excludable in supply (you and your bank can stop me from spending the funds in your wallet or account) (White 1999: 89). Accordingly, the market does not inherently fail to provide money efficiently.
Topic:
Markets, Monetary Policy, Economy, State, Banks, and Digital Currency
Political Geography:
Global Focus

4. Assessing Global Financial Stability

Author:
Tobias Adrian
Publication Date:
06-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the decade since the global financial crisis, there has understandably been great concern about potential threats to global financial stability, and policymakers have wisely remained vigilant in watching for warning signs of possible economic risk. At the International Monetary Fund (IMF), we remain committed to providing our 189 member countries with farsighted analyses of trends in the financial markets, thus guiding them toward sound policy choices that help maintain economic stability.
Topic:
International Trade and Finance, Global Recession, Financial Crisis, Economy, Economic Growth, Risk, IMF, and Financial Stability
Political Geography:
Global Focus

5. Global Imbalances: A Source of Strength or Weakness?

Author:
Kristin J. Forbes
Publication Date:
07-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Gross capital flows into the United States totaled $1.8 trillion in 2006. When combined with the $1.0 trillion the United States sent abroad, these net capital inflows funded the U.S. current account deficit of about $800 billion.1 The source of a large proportion of these capital inflows was developing economies—especially China and major oil exporters. Why are foreigners willing to invest such massive amounts of money in the U.S. economy? And perhaps even more surprising—why are countries with low levels of investment willing to send this relatively scarce resource to a capital-abundant economy instead of investing in their own countries? Understanding the motivation behind the millions of individual decisions that drive these capital inflows is critically important to understanding if this massive net transfer of capital into the United States reflects a strength or weakness of the global economy.
Topic:
Economy, Investment, and Capital
Political Geography:
Global Focus and United States of America

6. The Welfare Implications of Global Financial Flows

Author:
Eswar Prasad
Publication Date:
07-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Any discussion of whether the global financial system has served the world well requires us to think about what it is that capital flows could achieve in the best of circumstances. The basic neoclassical model suggests that, with rising financial globalization, capital should flow from rich to poor countries, making people in both sets of countries better off by enabling a more efficient international allocation of capital from countries where capital is less productive to those where it ought to be more productive. In addition, financial flows should allow for more efficient sharing of risk across countries, thereby facilitating the smoothing of national consumption against countryspecific shocks to national output. These benefits are likely to be greater for developing countries as they have less capital and more volatile growth, implying that both the growth and risk sharing benefits would be larger for them.
Topic:
Economy, Welfare, Capital, and Financial Systems
Political Geography:
Global Focus

7. The Conquest of Worldwide Inflation: Currency Competition and Its Implications for Interest Rates and the Yield Curve

Author:
Randall S. Kroszner
Publication Date:
07-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In the United States and in virtually every country around the world, inflation has declined, and in most countries dramatically so. In addition, the volatility of inflation and expectations of future inflation have also fallen significantly. I will call these changes experienced around the globe the conquest of worldwide inflation. I will begin by providing a few facts about the substantial improvement of inflation during roughly the past decade compared with the quarter century that preceded it. I will then try to understand why this remarkable decline in inflation has taken place. In particular, I argue that globalization, deregulation, and financial innovation, in part spurred by experiences of high inflation in the 1980s, have fostered currency competition that has led to improved central bank performance and, hence, the recent conquest of worldwide inflation. Friedrich Hayek (1976) had long ago advocated permitting greater competition among currencies, arguing that there would be a race to the top rather than a race to the bottom. Regardless of what one might think of Hayek’s policy proposals, technological change in a globalized and competitive marketplace, I believe, has increased competition among currencies issued by central banks.
Topic:
Economy, Inflation, Interest Rates, Currency, and Economic Competition
Political Geography:
Global Focus

8. Fair Trade Coffee Enthusiasts Should Confront Reality

Author:
Jeremy Weber
Publication Date:
01-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
From university cafeterias to supermarkets in the developed world, people are buying Fair Trade (FT) coffee certified by the FLO-Cert, the certifying entity of Fairtrade Labelling Organizations International (FLO). The assumption is that such purchases will contribute to the welfare of marginalized producers in the developing world. While sales of FT coffee in Europe have stabilized, the North American and Japanese markets are growing rapidly. Total sales increased 40 percent from 2004 to 2005, to a total volume of 33,992 metric tons (MT) (FTO 2005). What is “Fair Trade”? According to FINE, the umbrella organization that comprises the four largest Fair Trade organizations (FLO, International Federation for Alternative Trade, Network of European World Shops, and the European Fair Trade Association), Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers—especially in the South [FINE 2001]. The FINE definition optimistically assumes that the trading partnerships and conditions promoted by Fair Trade necessarily “contribute to sustainable development.” It is true that the Fair Trade coffee system—the producers, exporters, importers, and retailers operating by the rules and standards of FLO—has improved living standards for many participating coffee growers (Bacon 2005, Raynolds 2004). Yet the system faces vexing issues such as a disconnect between promotional materials and reality, excess supply, and the marginalization of economically disadvantaged producers and groups. Those involved in Fair Trade coffee debates and governance must address these issues if Fair Trade is to be an effective mechanism for rural development in coffee producing regions.
Topic:
Development, Economy, Trade, Coffee, and Fair Trade
Political Geography:
Global Focus

9. Global Imbalances: Do They Matter?

Author:
Miranda Xafa
Publication Date:
01-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article reviews the recent literature on global imbalances and discusses the policy implications of the various theories that have been advanced to explain their unprecedented increase. Most of these theories fit the stylized facts, namely, the steady increase in the U.S. current account deficit, the shift to a surplus position of the developing countries, and the low nominal and real interest rates globally. The “low U.S. savings” theory—reflecting the increase in the fiscal deficit and in housing wealth—views the current account deficit as the result of fiscal and monetary policy decisions in the United States that need to be urgently reversed to prevent a crash landing. Other theories however, focusing on developments outside the United States, portfolio balance effects, or previously neglected benign factors, do not yield such a doomsday scenario. It is relevant to note that there is no historical precedent of disorderly exchange rate adjustment in industrial countries that keep inflation under control (Croke, Kamin, and Leduc 2005). Concerns over a disorderly unwinding of global imbalances therefore appear exaggerated. This view, prevalent among market participants and several prominent academics, has not been widely embraced by policymakers.
Topic:
Monetary Policy, Economy, Wealth, and Savings
Political Geography:
Global Focus and United States of America

10. Economic Freedom and Net Business Formation

Author:
Noel D. Campbell and Tammy M. Rogers
Publication Date:
01-2007
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Economic freedom indexes, especially the Fraser Institute/Cato Institute Economic Freedom of the World (EFW) index and the Heritage Foundation/Wall Street Journal Index of Economic Freedom, are becoming increasingly important as researchers seek to explore the link between economic freedom and prosperity. The consistent finding is that nations with more economic freedom—as indicated by security of property rights, free trade, limited government, low marginal tax rates, and so forth—enjoy higher per capita incomes and general living conditions compared with countries that are less free.1 In a less aggregated study, Karabegovic et al. (2003) find that differences in economic freedom across U.S. states and Canadian provinces are significantly and positively related to differences in the level and growth of economic activity across states and provinces. Various researchers have used the Economic Freedom of North America (EFNA) index, published by the Fraser Institute (Karabegovic, McMahon, and Mitchell 2005), to address questions of income differentials between states, income growth, and entrepreneurship.2 Scholars have also used the EFNA index to study migration. Ashby (2007), not surprisingly, finds that people tend to move from less free to more free areas.
Topic:
Migration, Economy, Business, Free Trade, and Freedom
Political Geography:
Global Focus

11. Economic Freedom and Development: New Calculations and Interpretations

Author:
Erich Weede
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
For some time there has been a debate about the effect of economic freedom on economic growth and development (Beach and Davis 1999: 10; de Haan and Siermann 1998; de Haan and Sturm 2000; Edwards 1998; Goldsmith 1997; Gwartney, Lawson, and Block 1996: 109; Knack and Keefer 1995; Pitlik 2002; Scully 1992; Torstensson 1994; Weede and Kämpf 2002). Although there is wide agreement about the stylized fact that economically free societies are richer than other societies, there is less agreement about the impact of economic freedom on growth rates. Some writers contend that the level of economic freedom affects growth, whereas others, in particular de Haan and his associates, dispute the robustness of this claim and find only a relationship between improvements in economic freedom and growth. The most recently published research on the effects of economic freedom on growth (Gwartney and Lawson 2004; Gwartney, Holcombe, and Lawson 2006) reaffirms that there are strong and beneficial effects of the level of economic freedom and of its improvement on growth rates. Looking at the published literature as well as at the work in progress by one of my doctoral students (Liu 2007), my impression is that there are two ways to strengthen the effects of the level of economic freedom on growth: first, choose a longer rather than shorter period of growth observation; second, and more important, use an average measure of the level of economic freedom rather than a single time point measure of economic freedom that refers only to the first year of growth observation. If one compares, say, de Haan and Sturm’s (2000) study with Gwartney, Holcombe, and Lawson’s (2006), then one finds that the former study uses a somewhat shorter period of growth observation, but both of them use the level of economic freedom at the beginning of the growth period to be explained.1 Whereas de Haan and Sturm (2000) find no significant and robust effect of the level of economic freedom on growth, Gwartney, Holcombe, and Lawson (2006) arrive at the opposite conclusion: The level of economic freedom does promote growth.2
Topic:
Economy, Economic Growth, Economic Development, and Freedom
Political Geography:
Global Focus

12. The Case for Market‐​Based Regulation

Author:
Gerald P. O'Driscoll Jr.
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In this article, we reconsider the rationale for government regulation of markets. We begin by identifying markets as governed not only by prices but also by evolved institutions, rules, and standards. We then analyze how this complex order regulates human behavior, discuss the case for adding a layer of government regulation to the market’s own regulatory system, and present a number of case studies to clarify the issues. Our focus is not on the familiar public choice criticism of government regulation—namely, that regulation is more about the pursuit of economic rents than protecting the so-called public interest. While that criticism is correct and we make reference to it where appropriate, the thrust of our argument is that market self-regulation is often superior to government regulation, which frequently is a solution in search of a problem.
Topic:
Government, Markets, Regulation, and Economy
Political Geography:
Global Focus