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11. Central Banks: Reform or Abolish?

Author:
Gerald P. O'Driscoll Jr.
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Advocates of central bank reform must examine why central banks emerged and what forces sustain them. They did not arise in an institutional vacuum, and will not be reformed in an institutional vacuum. The historical origins of central banks explain how they came into existence. The forces sustaining and feeding their growth may differ from those explaining their origin.
Topic:
Economics, International Trade and Finance, Markets, Monetary Policy, and Governance
Political Geography:
United States

12. The Misuse of Top 1 Percent Income Shares as a Measure of Inequality

Author:
Alan Reynolds
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This paper confirms recent studies which find little or no sustained increase in the inequality of disposable income for the U.S. population as a whole over the past 20 years, even though estimates of the top 1 percent's share of pretax, pretransfer (market) income spiked upward in 1986-88, 1997-2000 and 2003-2007.
Topic:
Economics, Government, Markets, and Social Stratification
Political Geography:
United States

13. Still a Better Deal: Private Investment vs. Social Security

Author:
Michael Tanner
Publication Date:
02-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Opponents of allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts have long pointed to the supposed riskiness of private investment. The volatility of private capital markets over the past several years, and especially recent declines in the stock market, have seemed to bolster their argument.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States

14. Competition in Currency: The Potential for Private Money

Author:
Thomas L. Hogan
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Privately issued money can benefit consumers in many ways, particularly in the areas of value stability and product variety. Decentralized currency production can benefit consumers by reducing inflation and increasing economic stability. Unlike a central bank, competing private banks must attract customers by providing innovative products, restricting the quantity of notes issued, and limiting the riskiness of their investing activities. Although the Federal Reserve currently has a de facto monopoly on the provision of currency in the United States, this was not always the case. Throughout most of U.S. history, private banks issued their own banknotes as currency. This practice continues today in a few countries and could be reinstituted in the United States with minimal changes to the banking system.
Topic:
Economics, Government, Markets, and Monetary Policy
Political Geography:
United States

15. Questioning Homeownership as a Public Policy Goal

Author:
Morris A. Davis
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
For decades U.S. housing policy has focused on promoting homeownership. In this study, I show that the set of policies designed to further homeownership has been ineffective and expensive and that homeownership as a public policy goal is not well supported.
Topic:
Economics, Government, Markets, and Urbanization
Political Geography:
United States

16. What Made the Financial Crisis Systemic?

Author:
Patric H. Hendershott and Kevin Villani
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The current narrative regarding the 2008 systemic financial system collapse is that numerous seemingly unrelated events occurred in unregulated or underregulated markets, requiring widespread bailouts of actors across the financial spectrum, from mortgage borrowers to investors in money market funds. The Financial Crisis Inquiry Commission, created by the U.S. Congress to investigate the causes of the crisis, promotes this politically convenient narrative, and the 2010 Dodd-Frank Act operationalizes it by completing the progressive extension of federal protection and regulation of banking and finance that began in the 1930s so that it now covers virtually all financial activities, including hedge funds and proprietary trading. The Dodd-Frank Act further charges the newly created Financial Stability Oversight Council, made up of politicians, bureaucrats, and university professors, with preventing a subsequent systemic crisis.
Topic:
Economics, Government, Markets, Global Recession, and Financial Crisis
Political Geography:
United States

17. Regulation, Market Structure, and Role of the Credit Rating Agencies

Author:
Mark A. Calabria and Emily McClintock Ekins
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
During the financial crisis of 2008, the financial markets would have been better served if the credit rating agency industry had been more competitive. We present evidence that suggests the Securities and Exchange Commission's designation of Nationally Recognized Statistical Rating Organizations (NRSROs) inadvertently created a de facto oligopoly, which primarily propped up three firms: Moody's, S, and Fitch. We also explain the rationale behind the NRSRO designation given to credit rating agencies (CRAs) and demonstrate that it was not intended to be an oligopolistic mechanism or to reduce investor due diligence, but rather was intended to protect consumers. Although CRAs were indirectly constrained by their reputation among investors, the lack of competition allowed for greater market complacency. Government regulatory use of credit ratings inflated the market demand for NRSRO ratings, despite the decreasing informational value of credit ratings. It is unlikely that this sort of regulatory framework could result in anything except misaligned incentives among economic actors and distorted market information that provides inaccurate signals to investors and other financial actors. Given the importance of our capital infrastructure and the power of credit rating agencies in our financial markets, and despite the good intentions of the uses of the NRSRO designation, it is not worth the cost and should be abolished. Regulators should work to eliminate regulatory reliance on credit ratings for financial safety and soundness. These regulatory reforms will, in turn, reduce CRA oligopolistic power and the artificial demand for their ratings.
Topic:
Economics, Markets, Financial Crisis, and Governance
Political Geography:
United States

18. Corporate Welfare in the Federal Budget

Author:
Tad DeHaven
Publication Date:
07-2012
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Rising federal spending and huge deficits are pushing the nation toward a financial and economic crisis. Policymakers should find and eliminate wasteful, damaging, and unneeded programs in the federal budget. One good way to save money would be to cut subsidies to businesses. Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States

19. Markets, Tort Law, and Regulation to Achieve Safety

Author:
Paul H. Rubin
Publication Date:
06-2011
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Markets, tort law, and regulation are alternative methods of achieving safety. Of these, the market is the most powerful, but it is often ignored in policy discussions. I show that both for the United States over time and for the world as a whole, higher incomes are associated with lower accidental death rates, and I discuss some examples of markets creating safety. Markets may fail if there are third-party effects or if there are information problems. Classic tort law is a reasonable (although expensive) way to handle third-party effects for strangers, as in the case of auto accidents. In theory, regulation could solve information problems, but in practice many regulations overreach because of different information problems—consumers are unaware of unapproved alternatives. A particularly difficult information problem arises in the case of what I call “ambiguous goods”— goods that reduce some risks but increase others (for example, medical care and malpractice.) Product liability focuses on these goods; over half of the litigation groups of the American Association for Justice are for ambiguous goods.
Topic:
Markets
Political Geography:
United States

20. Capital Inadequacies: The Dismal Failure of the Basel Regime of Bank Capital Regulation

Author:
Kevin Dowd, Martin Hutchinson, Jimi Hinchliffe, and Simon Ashby
Publication Date:
07-2011
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The Basel regime is an international system of capital adequacy regulation designed to strengthen banks' financial health and the safety and soundness of the financial system as a whole. It originated with the 1988 Basel Accord, now known as Basel I, and was then overhauled. Basel II had still not been implemented in the United States when the financial crisis struck, and in the wake of the banking system collapse, regulators rushed out Basel III.
Topic:
Economics, International Trade and Finance, Markets, Monetary Policy, and Governance
Political Geography:
United States