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181. Does “Starve the Beast” Work?

Author:
Jerry H. Tempelman
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Starve-the-beast proponents believe that in order to tame the beast, one needs to starve it, with the beast being an obvious reference to Thomas Hobbes’s Leviathan depiction of an out-of-control state apparatus. The idea of tax reductions as a way to enforce discipline in government spending holds regardless of whether the nation is in the midst of an economic expansion or a recession. Following the recurrence of federal budget deficits that coincided with the enactment of federal tax cuts during 2001–2003, the starvethe-beast approach to fiscal policy that once was one of the underpinnings of the Reagan Revolution has become increasingly controversial. It is no longer mainly the political left that criticizes the starve-the-beast approach. Even some Republicans who once participated in the move to a smaller government during the Reagan presidency now criticize starve-the-beast thinking. Recently, William Niskanen (2005) has used statistical evidence to demonstrate that a decrease in taxes in a given year is followed by an increase in spending the next. Bruce Bartlett (2005) has proposed raising taxes, namely by introducing a value-added tax, presumably to prevent having to increase less efficient income taxes later.
Topic:
Budget, Economy, Tax Systems, and Fiscal Policy
Political Geography:
North America and United States of America

182. Limiting Government: The Failure of “Starve the Beast”

Author:
William A. Niskanen
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
For nearly 30 years, many Republicans have argued that the most effective way to control federal government spending is to “starve the beast” by reducing federal tax revenues. Moreover, two Nobel laureate economists, Milton Friedman and Gary Becker, have endorsed this argument. Friedman (2003) summarized this perspective as follows: How can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance. For governments, this means cutting taxes. Resulting deficits will be an effective—I would go so far as to say, the only effective—restraint on the spending propensities of the executive branch and the legislature. The public reaction will make that restraint effective. Becker and his colleagues Ed Lazear and Kevin Murphy (2003) described this effect as “the double benefit of tax cuts.” (Lazear is the recently appointed chairman of the Council of Economic Advisers.) This argument has been effective in unifying the Republican Party in favor of reducing federal taxes, but at the cost of undermining the more traditional Republican concern about fiscal responsibility.
Topic:
Government, Economy, Tax Systems, Fiscal Policy, and Public Spending
Political Geography:
North America and United States of America

183. U.S.-China Relations: The Case for Economic Liberalism

Author:
James A. Dorn
Publication Date:
10-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In its 2005 Report to Congress, the U.S.-China Economic and Security Review Commission—also known as the U.S.-China Commission (USCC)—recommended that China appreciate its currency, the renminbi (RMB), “by at least 25 percent against the U.S. dollar” or face “an immediate, across-the-board tariff on Chinese imports.” The commission argued that such an action could be justified under Article XXI of the World Trade Organization (WTO), “which allows members to take necessary actions to protect their national security.” The key idea behind the commission’s protectionist policy stance is that “China’s undervalued currency has contributed to a loss of U.S. manufacturing, which is a national security concern” (USCC 2005: 14).
Topic:
Bilateral Relations, Economy, Trade, and Liberalism
Political Geography:
China, Asia, North America, and United States of America

184. Global Imbalances and Financial Reform with Examples from China

Author:
Raghuram G. Rajan
Publication Date:
07-2006
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
I will focus on a familiar issue, the problem of global current account imbalances, and will describe how financial sector reform can help narrow them, using examples from China. The United States is running a current account deficit approaching 6.25 percent of its GDP and over 1.5 percent of world GDP. To help finance it, the United States pulls in 70 percent of all global capital flows. Clearly, such a large deficit is unsustainable in the long run. The current situation has its roots in a series of crises over the last decade that were caused by excessive investment, such as the Japanese asset bubble, the crises in emerging markets in Asia and Latin America, and most recently, the IT bubble. Investment has fallen off sharply since, with only very cautious recovery. This is particularly true of emerging Asia and Japan. The policy response to the slowdown in investment has differed across countries. In the industrial countries, accommodative policies such as expansionary budgets and low interest rates have led to consumption- or credit-fueled growth, particularly in Anglo-Saxon countries. Government savings have fallen, especially in the United States and Japan, and household savings have virtually disappeared in some countries with housing booms. By contrast, the crises were a wake-up call in a number of emerging market countries. Historically lax policies have been tightened, with some countries running primary fiscal surpluses for the first time, and most bringing down inflation through tight monetary policy. With corporations cautious, and governments abandoning the grandiose projects of the past, investment has fallen off. Instead, exports have led growth. Many emerging markets have run current account surpluses for the first time. In emerging Asia, a corollary has been a buildup of international reserves.
Topic:
Financial Crisis, Reform, Finance, Economy, and Deficit
Political Geography:
China, Asia, North America, and United States of America

185. Promoting U.S. Economic Growth and Security Through Expanding World Trade: A Call for Bold American Leadership

Author:
Research and Policy Committee of the Committee for Economic Development
Publication Date:
06-2003
Content Type:
Special Report
Institution:
The Conference Board
Abstract:
This report presents a leadership vision of a strong and open global trading system, and urges the United States and its trading partners to adopt vital policy reforms, including delinking agricultural subsidies from prices and production while opening agricultural markets everywhere, and eliminating all tariffs and non-tariff barriers in both manufacturing and services.
Topic:
Security, International Trade and Finance, Leadership, Economy, and Economic Growth
Political Geography:
North America, Global Focus, and United States of America