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Recent Policy Studies
Information TechnologyBy Jerry Brito, Mercatus CenterMercatus on Policy, 04/13/2009
Legislatures around the country have begun to propose spending-transparency Web sites. The most effective argument against these efforts is the potential high cost of such Web sites. We looked at ten recently established state spending sites and found that initial cost estimates often overestimated the final cost. The cost of the surveyed sites range from $30,000 to $300,000, and there is little correlation between the amount spent and the quality of the Web site.
Budget & TaxationBy D. Sean Shurtleff, Pamela Villarreal, National Center for Policy AnalysisBrief Analysis, 04/13/2009
The best economic stimulus policy would be to reduce long-term government debt, including current public debt and unfunded liabilities. This type of responsible debt policy would strengthen the dollar and spark consumer and investor confidence. If it can work for an individual, why wouldn't it work for government?
Natural Resources, Energy, Environment, & ScienceBy K. Lloyd Billingsley, Pacific Research InstituteCapital Ideas, 04/13/2009
Sierra Pacific Industries (SPI) is closing down an El Dorado County sawmill that has been around since 1889. SPI will also close another sawmill and electric power plant in Tuolome county. Two more SPI mills in Plumas and Humbolt counties will also close, leaving hundreds of workers without jobs. One reason for the closings is the drop in new-home construction. Anti-growth activists will be happy about the shutdowns, part of their stance known as BANANA – Build Absolutely Nothing Anywhere Near Anyone. Drexel University, for example, wants to build a campus on donated land near Roseville already approved for development. The Sierra Club opposes the new campus, which they fear will lead to other growth, such as homes. This anti-growth stance, however, will hinder rather than help the environment.
Information TechnologyBy Daniel R. Ballon, Pacific Research InstituteCapital Ideas, 04/13/2009
The California Assembly will soon consider proposals to “protect” residents from two of Silicon Valley’s most successful innovators. Google and Facebook help form the backbone of the state’s high-tech economy, but some lawmakers see them as a threat to privacy and security.
Transportation/InfrastructureBy Daniel R. Ballon, Pacific Research InstituteTech Policy Transmission, 04/13/2009
President Obama’s vision for economic recovery centers on creating “green collar” jobs through substantial investment in clean technologies. Upon signing his “green stimulus” bill in February, Obama touted a $4.5- billion provision to “create a newer, smarter electric grid that will allow for broader use of alternative energy.” Despite the clear benefits of giving the electricity grid its first major upgrade since the 1950s, few proponents have addressed the obvious questions: Why did the nation’s infrastructure grow so obsolete, and are we setting the stage for another six decades of stagnation?
Budget & TaxationBy Mark Robyn, Tax FoundationFiscal Facts, 04/13/2009
On February 12, the Arkansas General Assembly passed legislation to increase the state’s excise rates on all tobacco products. As required by the bill, on March 1 the cigarette tax went from 59 cents to $1.15 per twenty-pack. But the same tax rate will not be enforced statewide. In a novel provision, the legislation, Act 180 of 2009, included a lower, variable rate for certain towns and stores located near the Arkansas border.
Budget & TaxationBy Travis Greaves, Joseph Henchman, Tax FoundationFiscal Facts, 04/13/2009
The new Yankee Stadium’s construction costs have been publicly subsidized in the form of $942 million in tax-exempt bonds issued by New York City. Seeking tax-free status for the bonds to ensure a lower interest rate, New York structured the deal to ensure it didn’t run afoul of a federal tax code provision which requires that such bonds not be “private activity bonds.” This serves as a huge benefit because the bonds are exempt from city, state, and federal taxes, and have an interest rate about 25 percent below that of taxable bonds. There are two parts to this financing scheme which seem “foul.” First, the new Yankee Stadium will be city-owned and thus exempt from property taxes. Meanwhile its primary tenant, the Yankees, will pay no rent. This clearly brings up the issue of whether such tax-exempt bonds should have been issued at all, and especially when the city is so far in the red.
Budget & TaxationBy Patrick Fleenor, Tax FoundationFiscal Facts, 04/13/2009
Today the federal cigarette tax will rise from 39 cents to $1.01 per pack. The proceeds will help fund expansion of the federal State Children’s Health Insurance program. This program provides federal matching funds to states to assist them in providing health insurance to families and children. The SCHIP program is targeted at families with modest incomes above Medicaid eligibility limits. Of course what the federal government gives with one hand it takes with the other. A $6.3 billion increase in the federal cigarette excise will reduce the disposable incomes of residents in the states.
Budget & TaxationBy Joseph Henchman, Tax FoundationFiscal Facts, 04/13/2009
On March 19, 2009, the U.S. House of Representatives voted 328 to 93 to pass H.R. 1586, which imposes a 90% income tax on bonuses earned by employees who work at a company that received an aggregate of $5 billion in federal TARP bailout funds, including specifically Fannie Mae and Freddie Mac. Observers have noted that the bill is a direct result of bonuses awarded by bailout recipient American International Group (AIG), an insurance company now in something akin to bankruptcy trusteeship. Critics of the bill have raised policy concerns as well as suggestions that the bill may violate the constitutional prohibition on Bills of Attainder and other restrictions on legislation. Because the purpose of the legislation is to strip a specified group of people of their property, even though other nonpunitive options are available, and because the evidence suggests a punitive motive, the bill could be found unconstitutional as a bill of attainder.
Information TechnologyBy Michael K. Powell, et al., Free State FoundationTranscript, 04/13/2009
For over a decade now we have witnessed an extraordinary evolution in this thing called “broadband,” and the discussions have grown about its significance and public policy treatment. We have seemingly gone from a techno-ecstatic, euphoric period, in which everything seemed possible, to a time where real issues of substitution for the traditional network have become important. And what clearly has emerged is that the broadband question is about both wireline and wireless, with enormous and extraordinary potential for economic productivity, education reform, and healthcare. There are no problems, challenges, or solutions that do not incorporate the significance of broadband or technology. And so, we are going to grapple with some of those issues today.
Health CareBy Albert I. Wertheimer, Thomas M. Santella , Competitive Enterprise InstituteIssue Analysis, 04/13/2009
Innovation is the lifeblood of the pharmaceutical industry. Over the last century, that industry has been responsible for thousands of new drugs, based on hundreds of thousands of smaller incremental innovations. The breakthrough “blockbuster” drugs taken by millions of patients today were not produced from thin air. Most represent the combined weight of seemingly small improvements achieved over time. The advantages of incremental improvements on existing drugs are paramount to overall increases in the quality of health care. As the pharmaceutical industry developed, classes of drugs—those with similar chemical composition and which treat similar conditions—have grown to provide physicians with the tools they need to treat diverse patient groups. Still, critics have been highly condescending about what they call “Me-too” drugs—drugs within the same chemical class as one or more others already on the market—which they claim add little or no therapeutic value and are nothing more than an opportunity for pharmaceutical companies to fleece unsuspecting consumers.
Budget & TaxationBy Josh Barro, Tax FoundationSpecial Report, 04/13/2009
Tax Freedom Day will arrive on April 13 this year, the 103rd day of 2009. That means Americans will work about three and a half months of the year, from January 1 to April 13, before they have earned enough money to pay this year’s tax obligations at the federal, state and local levels. Tax Freedom Day falls a full two weeks earlier in 2009 than it did in 2007. In fact, not since 1967 has Tax Freedom Day come earlier than this year’s April 13 date. This shift has been driven by two factors: the recession has reduced tax collections even faster than it has reduced income; and the stimulus package, a.k.a. HR 1, the American Recovery and Reinvestment Act of 2009, includes large temporary tax cuts for 2009 and 2010. Nevertheless, in 2009, Americans will pay more in taxes than they will spend on food, clothing and housing combined.
Foreign Policy/International AffairsBy Walter Lohman, The Heritage FoundationWebMemo, 04/13/2009
Indonesian President Susilo Bambang Yudhoyono is a clear winner in his country’s April 9, 2009 parliamentary elections. Yet he will need to form a governing coalition. The most important part of the coalition will be his choice of a vice presidential running mate.
Foreign Policy/International AffairsBy Ted R. Bromund , The Heritage FoundationWebMemo, 04/13/2009
The G-20 Summit in London promised to bring together the heads of the world’s leading nations to address the global financial crisis. Instead, the summit agreed on measures that are by turn weak, vague, and sinister.
EducationBy Dan Lips, The Heritage FoundationWebMemo, 04/13/2009
Now that an evaluation of the D.C. Opportunity Scholarship Program is complete, questions about this program’s effectiveness are resolved.
Family, Culture & CommunityBy Ryan Messmore, The Heritage FoundationBackgrounder, 04/13/2009
President Barack Obama’s proposal to raise taxes and reduce charitable deductions for the wealthy mistakenly suggests that government bureaucracy can deploy citizens’ resources more effectively than nonprofit civil society organizations can. It moves the dial of social responsibility one more notch in the direction of the state at the expense of local institutions that serve the poor more personally and efficiently.
Economic and Political ThoughtBy Iain Duncan Smith, The Heritage FoundationHeritage Lecture, 04/13/2009
Emphasizing social policy means rediscovering the conservatism of Edmund Burke. There will be no sustainable reduction in the size of the state if civil society doesn’t become stronger, nurturing self-sufficient and vigorous citizens; no possibility of light-touch regulation if certain moral values are absent from our culture; and no competitive economy if families don’t encourage their children to learn and excel.
National SecurityBy Jena Baker McNeill, James Jay Carafano, The Heritage FoundationWebMemo, 04/13/2009
President Obama should fold the Homeland Security Council into the National Security Council. Doing so would improve interagency policy planning and eliminate gaps between efforts to address transnational security threats at home and overseas.
Budget & TaxationBy Eric Montarti, Allegheny Institute for Public PolicyAllegheny Institute Report, 04/10/2009
This report analyzes data from the 2008 report on Pennsylvania’s Local Government Pensions prepared by the Public Employee Retirement Commission. While our previous report examined the pension plans of the state’s ten largest cities, this report segments pension data by employee classification police (963 plans), fire (79 plans), and non-uniformed (1,524 plans).to determine whether differences among the three types as gauged by the ratio of retirees to active members and the ratio of assets to plan liabilities. The study examines the data with Philadelphia and Pittsburgh in the total and with the two cities removed. It also looks at home rule municipalities as compared to the non-home rule municipalities in terms of pension plan measurements.
Family, Culture & CommunityBy Jennifer A. Marshall, Katherine Bradley, The Heritage FoundationWebMemo, 04/09/2009
Within the first quarter of 2009, the Obama Administration and the 111th Congress have advanced a number of policies that will undermine family and religious freedom in America.
Transportation/InfrastructureBy Matt A. Mayer, David C. John, James Jay Carafano, The Heritage FoundationBackgrounder, 04/09/2009
The private sector, state governments, and the federal government could take many actions short of creating a catastrophic hurricane fund that would provide greater stability to the insurance market at a lower cost to most taxpayers. Those who assume the risk of living in higher risk areas should fully pay for that risk through actuarially sound insurance rates.
Foreign Policy/International AffairsBy Sally McNamara, The Heritage FoundationWebMemo, 04/09/2009
In spite of President Obama’s high personal approval ratings among Europeans, he did not further American interests at NATO’s 60th anniversary summit last weekend.
Foreign Policy/International AffairsBy Brett D. Schaefer, The Heritage FoundationWebMemo, 04/09/2009
The U.S. should seek to suspend the U.N. Development Program as a clear signal of international displeasure with North Korea’s missile launch.
The Effect of Milwaukee’s Parental Choice Program on Student Achievement in Milwaukee Public SchoolsBy Jay P. Greene, Ryan H. Marsh, Department of Education Reform at the University of ArkansasReport, 04/09/2009
This paper examines evidence on the “systemic effects” of expanding school choice in Milwaukee, Wisconsin. Milwaukee is home to one of the nation’s longest-running school choice programs. If there are systemic effects from expanding school choice we should be able to see them in Milwaukee. This paper also introduces a novel method for analyzing systemic effects. Taking full advantage of student-level data, we develop a new measure of those effects based on the extent of voucher options that each student has each year. The idea behind this measure is that school systems face greater competitive pressure to serve students well when students have more options to leave. This type of measure might be useful for future analyses of systemic effects. Using this approach, we find that students fare better academically when they have more options from Milwaukee’s voucher program. The effects are modest in magnitude, but they are robust to multiple specifications of the model.
Health CareBy Devon Herrick, National Center for Policy AnalysisBrief Analysis, 04/09/2009
Many of the nearly 46 million uninsured say they are unable to afford health insurance. Advocates of various state regulations claim their proposals would make health coverage more affordable. These regulations include mandates that employers offer their employees health insurance or that individuals obtain health coverage, and requirements that health plans and insurers cover specified benefits or accept anyone who applies for insurance. However, rather than make coverage more affordable, these regulations drive up the cost of insurance.
Health CareBy Devon Herrick, National Center for Policy AnalysisBrief Analysis, 04/09/2009
Recent health care reform proposals have largely focused on achieving universal coverage through a combination of private-sector mandates, regulation of insurance premiums and expansion of government insurance. Proponents argue that adding more regulations and spreading costs across a wider insurance pool will make coverage more affordable. Reality belies these myths.
Monetary Policy/Financial RegulationBy Chris Robertson, Texas Public Policy FoundationPolicy Perspective, 04/09/2009
Having access to various forms of short-term credit helps consumers by allowing them more choice in matters of personal finance. The best way to protect borrowers is to allow for a competitive and healthy short-term lending market.
Economic GrowthBy Arduin, Laffer & Moore Econometrics, Texas Public Policy FoundationStudies, 04/09/2009
Government spending crowds out private sector spending, diminishing the private economy’s rate of growth. In other words, increased government spending makes citizens poorer because it takes their money now, while also reducing their future income. This fact is at the heart of the debate about whether or not Texas should accept federal stimulus money.
The Constitution/Civil LibertiesBy Bill Peacock, Texas Public Policy FoundationBill Analysis , 04/09/2009
The best way to protect property rights is to define public use in the Texas Constitution; not to ban takings that are only for the “primary” purpose of economic development.
The Constitution/Civil LibertiesBy Bill Peacock, Texas Public Policy FoundationBill Analysis , 04/09/2009
The U.S. Supreme Court’s infamous 2005 Kelo decision exposed years of jurisprudence in Texas that has undermined the standard in the Texas Constitution that property be taken only for a “public use.” Legislative changes in 2005, in response to Kelo, attempted to solve this problem, but they came up short.
Crime, Justice & the LawBy Edward J. Latessa, Christopher T. Lowenkamp, Texas Public Policy FoundationPolicy Perspective, 04/09/2009
Texas lawmakers are now considering a pilot program to provide counties with funds to deal with youths they would otherwise send to Texas Youth Commission. Ohio adopted this policy in 1995, and this paper describes the policy and examines the results, which have included fewer commitments to state lockups, lower costs, and reduced recidivism.
Regulation & DeregulationBy Bill Peacock, Texas Public Policy FoundationPolicy Perspective, 04/09/2009
Consumers don’t need the government to protect them from high prices; they need the government to allow them to make their own choices about what products they will buy at what price.
Monetary Policy/Financial RegulationBy Tim Congdon, Institute of Economic AffairsBook, 04/09/2009
Tim Congdon argues that the mistakes by the Bank of England arose directly from Gordon Brown’s decision to dismember the Bank in 1997. As a result, the Bank lost all its experience in commercial banking. Furthermore, the government and the Bank were unable to coordinate their actions in the way that had been envisaged by the government when it reformed the Bank of England. Congdon proposes a radical new settlement. The Bank of England should be privatised; its capital should be provided by the commercial banks; and it should regulate banks as well as providing them with lender-of-last-resort facilities. He shows how this new structure provides just the right incentives to regulate the banking system in a way that will ensure financial stability whilst allowing banks to provide efficient services to the public.
Information TechnologyBy Hance Haney, George Gilder, Heartland InstituteLegislative Principles, 04/09/2009
States discourage phone and cable companies from offering more competitive services and generating new jobs and economic growth by imposing taxes and regulations that are no longer appropriate for a highly competitive and fast-growing industry. Laws requiring cross-subsidies, utility regulation of competitive services, pricing inflexibility, tariff filing requirements, and consumer protection oversight in the hands of government staff whose specialty is regulation are not in the public interest. All serve chiefly as obstacles to investment that reduce asset values of all telecom suppliers.
Economic GrowthBy Andrew J. Rettenmaier, Thomas R. Saving, Private Enterprise Research CenterPERCspectives on Policy, 04/09/2009
We find ourselves in what appears to be a significant recession, a dramatic stock market decline, and a financial crisis simultaneously. Is it reasonable to lay the blame on the defaults of sub-prime mortgages as the primary cause of the current crises?
EducationBy E.D. Hirsch, Thomas Birmingham, Pioneer Institute for Public Policy ResearchTranscript, 04/09/2009
Today, when you compare American 15 year-olds to those in other nations on a combined measure of math, reading and science achievement, we are in the bottom quartile. It’s important to combine these subjects in a single view, especially reading, as I will explain later. Making these international comparisons with 15 year-olds is also a good idea, because students at that age stand at the end of the elementary school years, and their achievements at that point highly determine their later academic future. I completely agree with that view about the critical importance of the elementary grades. Those grades will be my focus in this talk.
EducationBy Jim Stergios, Pioneer Institute for Public Policy ResearchPolicy Brief, 04/09/2009
On November 18, 2008, the 21st Century Skills Task Force presented a set of recommendations to the Massachusetts Board of Elementary and Secondary Education (BESE) on why, how, and where to incorporate “21st century skills” in the state’s current academic standards and assessments for students and teachers. On December 16, the BESE agreed to ask the Commissioner and his staff at the Department of Elementary and Secondary Education (DESE) to develop an implementation plan. The DESE is expected to suggest a preliminary set of implementation priorities at the February BESE meeting, and to provide a more extensive response later this spring. The purpose of this policy brief is to help DESE set priorities for implementation of the task force’s recommendations. It outlines areas where Pioneer believes the task force has crafted useful recommendations and suggests how they might be implemented. It also calls attention to recommendations that we believe are mistaken in their emphasis on skills and pedagogy over academic content, and display a lack of practicality and knowledge of both state policy and local, district-level realities.
Budget & TaxationBy Michael Flynn, Adam B. Summers, Reason FoundationReason, 04/09/2009
Does any state, really “need” federal money during this economic downturn? Only if you accept the premise that state budgets should roughly double every decade.
Monetary Policy/Financial RegulationBy Eli Lehrer, James Madison InstituteBackgrounder, 04/09/2009
Without swift, sweeping reform, Florida’s current system for property and casualty insurance could well place the state in grave fiscal peril. This paper presents an agenda for reforming Florida’s property and casualty insurance system in the short term. It presents short-term steps that would pull Florida back from the brink of fiscal ruin, improve the state’s fiscal climate, reduce property insurance rates for many Floridians, and make the state safer and more secure against the threat of hurricanes.
Natural Resources, Energy, Environment, & ScienceBy Jack Spencer, The Heritage FoundationWebMemo, 04/08/2009
If CO2 reduction is truly the objective, then maximizing America’s nuclear resources should be a top priority.
The Constitution/Civil LibertiesBy Randolph W. Pate, The Heritage FoundationWebMemo, 04/08/2009
The Obama Administration is moving rapidly to overturn federal “conscience clause” regulations protecting health care providers who object to performing procedures that violate their religious beliefs or moral convictions.
ImmigrationBy Jena Baker McNeill, Diem Nguyen, The Heritage FoundationWebMemo, 04/08/2009
Raising H-1B caps will provide businesses the professionals and skills they need to develop their business when ready.
Natural Resources, Energy, Environment, & ScienceBy Jack Spencer, The Heritage FoundationWebMemo, 04/08/2009
Secretary of Energy Steven Chu is forming a blue-ribbon commission to answer the question of what to do with America’s nuclear waste. Here are our recommendations for what the commission should do.
Foreign Policy/International AffairsBy Ariel Cohen, Owen Graham, The Heritage FoundationWebMemo, 04/08/2009
President Obama’s visit to Turkey highlights the importance Washington attaches to this country as a key regional player, a veteran NATO ally, and an influential Muslim state.
Regulation & DeregulationBy Stephen M. Bainbridge , Cato InstituteRegulation, 04/08/2009
Legislation that “fixes” a nonexistent problem by upsetting basic principles of federalism ought to be a nonstarter. Unfortunately, the executive compensation debate has become so thoroughly bollixed up with issues of class warfare and financial populism that rational arguments seem to fall on deaf ears.
Regulation & DeregulationBy Indur M. Goklany, Cato InstituteRegulation, 04/08/2009
In this article, I address the threshold question of whether future generations would in fact be worse off than we are if climate change is allowed to occur and is uncontrolled. I compare current and future welfare per capita after accounting for the costs of climate change. To do this, I will reduce estimates of future welfare per capita in the absence of climate change by estimates of the welfare losses from climate change. For those downward adjustments, I use the Stern Review’s estimates of the costs of climate change from market effects, non-market (i.e., public health and environmental) effects, and the risk of catastrophe, even though several researchers have characterized the Stern Review’s estimates as excessive. I show that through 2200, at least, future generations will be much better off than present ones even after accounting for the costs of climate change.
Economic GrowthBy Stan J. Liebowitz , Cato InstituteRegulation, 04/08/2009
When the prices of current editions of copyrighted and noncopyrighted former bestsellers are compared, there is no clear evidence that copyright increases the price of books, a finding that I believe is likely to surprise many people. When books are given equal weight in the statistical analysis, I find no evidence of a price increase. When books are weighted by quantity sold, copyright appears to increase the overall price by no more than a fairly small 15 percent.
Regulation & DeregulationBy David E. Harrington, Cato InstituteRegulation, 04/08/2009
Free markets are often much better at handling greed in socially desirable ways than government regulations. To demonstrate this, I examined the secondary market for Ohio State University football tickets.
Regulation & DeregulationBy Stuart Shapiro, Cato InstituteRegulation, 04/08/2009
President Obama has entered office with the clear intention of altering many policy choices of the previous administration. New policies on Iraq and health care will attract a great deal of public and media attention. Regulatory policies involving the Environmental Protection Agency and the Occupational Safety and Health Administration will also receive attention. However, President Obama’s decisions on whether to retain, modify, or eliminate the Bush administration’s many changes to the regulatory process will get little notice. This is unfortunate because those decisions will affect policy in a wide variety of areas, and they deserve careful consideration.
Regulation & DeregulationBy Jeffrey A. Miron, Elina Tetelbaum , Cato InstituteRegulation, 04/08/2009
Our recent research reexamines whether the 1984 act reduced traffic fatalities by pushing states to adopt a minimum legal drinking age of 21. As in earlier work, we compare traffic fatality rates in states before and after they changed their MLDA to 21. In contrast to earlier work, however, we look separately at the effect in states that adopted the higher drinking age on their own versus those pressured to do so by the 1984 law. This is a crucial comparison because the argument for federal imposition rests on the assumption that the act itself reduced fatalities, not just that an MLDA 21 reduced fatalities in some states.
LaborBy Richard A. Epstein, Cato InstituteRegulation, 04/08/2009
There is today no constitutional obstacle against the rejection of competitive labor markets for the structure administered under the National Labor Relations Act (NLRA). But the current NLRA carefully preserves the exit option to protect against union domination. The EFCA removes that critical protection, which makes it a constitutional pariah, even for those who accept the New Deal constitutional synthesis that sustained the original Wagner Act. Rights of association and property clearly must count for something.
Monetary Policy/Financial RegulationBy William Poole, Cato InstituteCato Journal, 04/08/2009
The way forward in this financial crisis is to enact tax law changes that will improve the long-run stability of the economy by reducing the incentive for leverage, and by encouraging a substitution of business investment for consumption. And on the monetary policy front, the Fed must be prepared to reduce policy accommodation as the recovery takes hold.
Monetary Policy/Financial RegulationBy Roger W. Garrison, Cato InstituteCato Journal, 04/08/2009
Legislative interventions that nullify market mechanisms for the sake of achieving social goals have perverse consequences. This is a lesson can be learned many times over whether well-meaning or ill meaning interventions are in play. The current crisis in the markets for housing and for mortgages is an especially dramatic illustration of such perversities. The solution to this circumscribed aspect of the economy wide crisis is as easy to set out as it would be difficult to implement, given the state of public opinion and the scope for political opportunism. First, government-backed guarantees for mortgage loans or for any other loans should be a thing of the past. They stunt the market’s ability to constrain the risk-taking behavior of both borrowers and lenders. Fannie Mae and Freddie Mac should be permanently eliminated from the scene. Second, regulatory practices that override considerations of creditworthiness with other, supposedly more socially responsible criteria for making mortgage loans or any other loans should be no part of the housing industry’s future. In the end, the impersonal forces of the marketplace have a much more credible claim to being socially responsible than do the political forces that produce the override.
Monetary Policy/Financial RegulationBy Gerald P. O’Driscoll Jr., Cato InstituteCato Journal, 04/08/2009
We must not give in to the temptation to inflate our way out of the debt crises by depreciating the dollar and wiping out creditors wholesale. Yet there are disturbing signs that is direction in which policymakers are headed. If the Treasury and Fed do that, free markets will be euthanized.
Monetary Policy/Financial RegulationBy Kevin Dowd, Cato InstituteCato Journal, 04/08/2009
If anything is obvious about the current crisis, it is that the system of managed state intervention into the financial system has failed dismally: it is not “free”—that is, unregulated—markets that have failed, but the statist system within which financial markets and institutions have been forced to operate. This is not an academic issue or a case of ideological point scoring. It matters because we need to understand what went wrong if we are to get future reforms right. My own view is that the edifice of modern central banking cum financial regulation cum limited liability needs to be dismantled and 150 years of state intervention needs to be rolled back, but I have few illusions that this will happen. Be this as it may, my main message here is to take moral hazard seriously. Measures that rein in moral hazard are to be welcomed and will help to reduce excessive risk-taking; measures that create or exacerbate moral hazard (such as massive bailouts?) will lead to even more excessive risk-taking and should be avoided. In short, a key yardstick that should be applied to any proposed reform measure is simply this: Does it reduce moral hazard or does it increase it?
Monetary Policy/Financial RegulationBy Andrew A. Samwick, Cato InstituteCato Journal, 04/08/2009
The playing out of the subprime crisis has revealed a weakness in our public policy framework for dealing with institutional failure in financial markets that invites a continued expansion of government into areas that should be the domain of private citizens and institutions. In particular, policymakers have been unwilling to let financial institutions that made unwise decisions bear fully the negative consequences of those decisions. Procedures exist to provide liquidity to solvent but illiquid institutions, and other procedures exist to liquidate insolvent institutions. But as the subprime crisis emerged, the government failed to adhere to a consistent policy for dealing with troubled institutions, opening itself up to special pleading from many of these institutions at unnecessary cost to the taxpayer.
Monetary Policy/Financial RegulationBy Wolfgang Münchau, Cato InstituteCato Journal, 04/08/2009
Should we worry about moral hazard while the house is burning? The discussion about economic policy is full of biblical metaphors, the language of water and floods, and of fire extinction during crises. Metaphors, even when not mixed, are often obstacles to the clarity of thought. That is clearly the case with the metaphor of moral hazard in trying to understand the current financial crisis. Instead of focusing on moral hazard, I prefer to use the concept of policy sustainability to argue that sustainable monetary, fiscal, and regulatory policies are essential for lasting prosperity.
Monetary Policy/Financial RegulationBy Lawrence H. White, Cato InstituteCato Journal, 04/08/2009
The U.S. housing bubble and the fallout from its bursting are not the results of a laissez-faire monetary and financial system. They happened in an unanchored government fiat monetary system with a restricted financial system.
Monetary Policy/Financial RegulationBy Bert Ely, Cato InstituteCato Journal, 04/08/2009
Many commentators claim that financial deregulation since 1980 caused the U.S. housing crisis, leading to the global financial crisis. Yet, they fail to convincingly identify specific deregulatory actions that contributed to those crises. At the same time, numerous public-policy causes of the crisis, causes which still are in place, go unexamined. As President Obama and the new Congress begin to consider reform of the structure of the financial services industry, reform of the structure of the financial regulatory agencies, and reform of the manner in which financial intermediaries are regulated, one hopes that some consideration will be given to addressing the causes discussed in this article, however painful, politically and ideologically, that might be.
Monetary Policy/Financial RegulationBy Charles W. Calomiris, Cato InstituteCato Journal, 04/08/2009
This article reviews the major government policy distortions that gave rise to the subprime turmoil, and suggests robust policy reforms to deal with them (i.e., reforms that take into account the existence of those distortions and the political economy of regulation and supervision). The reforms proposed in this article would reduce the costs of distortions related to agency problems, too-big-to-fail problems, and government manipulation of housing credit markets.
Monetary Policy/Financial RegulationBy Jeffrey M. Lacker, Cato InstituteCato Journal, 04/08/2009
The current financial crisis undoubtedly will inspire a great deal of research in the years ahead, and it may take some time before anything like a professional consensus emerges on causes and consequences. After all, it took several decades to document the causes of the Great Depression, and recent research continues to provide new perspectives. Nonetheless, I believe the central questions that are likely to occupy researchers are plainly in view, and some tentative lessons have emerged already. And in any event, legislators are not likely to await the fruits of future scholarship. I will divide my discussion into two parts, reflecting two distinct time periods—the boom in housing and housing finance and the subsequent turmoil in financial markets—and then conclude with some thoughts about what lies ahead.
Monetary Policy/Financial RegulationBy Otmar Issing, Cato InstituteCato Journal, 04/08/2009
A monetary policy strategy that monitors closely monetary and credit developments as potential driving forces for consumer price inflation in the medium to long run has an important positive side effect: it may contribute at the same time to limiting the emergence of unsustainable developments in asset valuations. As long as money and credit remain broadly controlled the scope for financing unsustainable runs in asset prices should also remain limited.
Monetary Policy/Financial RegulationBy Donald L. Kohn, Cato InstituteCato Journal, 04/08/2009
I am not convinced that the events of the past few years and the current financial crisis demonstrate that central banks should switch to trying to check speculative activity through tighter monetary policy whenever they perceive a bubble forming. The recent experience may have made us a bit more confident about detecting bubbles, but it has not resolved the problem of doing so in a timely manner. Nor has it shown that small-to-modest policy actions will reliably and materially damp speculation. For these reasons, the case for extra action still remains questionable, despite our having learned that the aftermath of a bubble can be far more painful than we imagined.
Monetary Policy/Financial RegulationBy Allan H. Meltzer, Cato InstituteCato Journal, 04/08/2009
If we are to prevent future financial crises, a good place to start would be to (1) get a “lender of last resort” standard; (2) get the Congress to appropriate on the record the amount of money that they are going to use to subsidize housing; (3) improve the compensation system in the market; (4) get rid of some of the worst of the Basel Capital standards; and (5) close down Fannie and Freddie.
Monetary Policy/Financial RegulationBy Anna J. Schwartz, Cato InstituteCato Journal, 04/08/2009
At least three factors exercised significant influences on the emergence of the global financial crisis: expansive monetary policy, flawed financial innovations, and the collapse of trading.
Monetary Policy/Financial RegulationBy Jeffrey A. Miron, Cato InstituteCato Journal, 04/08/2009
In this article, I provide a preliminary assessment of the causes of the financial crisis and of the most dramatic aspect of the government’s response—the Treasury bailout of Wall Street banks. My overall conclusion is that, instead of bailing out banks, U.S. policymakers should have allowed the standard process of bankruptcy to operate.
PhilanthropyBy Neal B. Freeman, Hudson InstitutePaper, 04/08/2009
At the heart of every charitable contribution is the concept of trust—trust by the donor that the grantee will do what he has agreed to do. If that trust is allowed to erode, if the donor can no longer rely on the grantee’s assurance, then charitable contributions will decline and the civil society they sustain will decline along with them. If that were to happen—if the private, voluntary, civil society that Tocqueville first acclaimed, and that the Bradley Center still celebrates, were to wither away—America would abandon one of its defining national traits. Absent a vibrant civil society, only government would be left to fill the social vacuum and the America of tomorrow would come to look very much like the Europe of today.
Natural Resources, Energy, Environment, & ScienceBy Frank Conte, Beacon Hill InstituteReport, 04/08/2009
Specific proposals that several Western states, including California, would implement to comply with a proposed cap-and-trade carbon emissions control pact would destroy jobs and erode income, according to a report co-released by an economics institute.