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12. Operation Twist-the-Truth: How the Federal Reserve Misrepresents Its History and Performance
- Author:
- George Selgin
- Publication Date:
- 07-2014
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- For a private-sector firm, success can mean only one thing: that the firm has turned a profit. No such firm can hope to succeed, or even to survive, merely by declaring that it has been profitable. A government agency, on the other hand, can succeed in either of two ways. It can actually accomplish its mission. Or it can simply declare that it has done so, and get the public to believe it.
- Topic:
- Government
- Political Geography:
- United States
13. The Troubling Suppression of Competition from Alternative Monies: The Cases of the Liberty Dollar and E-gold
- Author:
- Lawrence H. White
- Publication Date:
- 07-2014
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Proposals abound for reforming monetary policy by instituting a less-discretionary or nondiscretionary system ("rules") for a fiat-money- issuing central bank to follow. The Federal Reserve's Open Market Committee could be given a single mandate or more generally an explicit loss function to minimize (e.g., the Taylor Rule). The FOMC could be replaced by a computer that prescribes the monetary base as a function of observed macroeconomic variables (e.g., the McCallum Rule). The role of determining the fiat monetary base could be stripped from the FOMC and moved to a prediction market (as proposed by Scott Sumner or Kevin Dowd). Alternative proposals call for commodity money regimes. The dollar could be redefined in terms of gold or a broader commodity bundle, with redeemability for Federal Reserve liabilities being reinstated. Or all Federal Reserve liabilities could actually be redeemed and retired, en route to a fully privatized gold or commodity-bundle standard (White 2012). All of these approaches assume that there will continue to be a single monetary regime in the economy, so that the way to institute an alternative is to transform the dominant regime.
- Topic:
- Government
- Political Geography:
- United States
14. The Conduct of Monetary Policy
- Author:
- Kevin Warsh
- Publication Date:
- 10-2013
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The Federal Reserve's independence is essential to the conduct of monetary policy. But while the Fed is independent within government, it is not independent of government. The grant of authority to the Fed comes from Congress, to which the Fed is ultimately accountable. In my view, the Fed was granted significant powers by Congress, but those powers were not unlimited. The grant of authority was constrained. So by my measure, the Fed is a powerful institution, but a bounded one.
- Topic:
- Government
15. What's Wrong with the Fed? What Would Restore Independence?
- Author:
- Allan H. Meltzer
- Publication Date:
- 10-2013
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- On September 1, 1948, Allan Sproul, president of the Federal Reserve Bank of New York, commented on Fed independence: I don't suppose that anyone would still argue that the central banking system should be independent of the Government of the country. The control which such a system exercises, over the volume and value of money is a right of Government and is exercised on behalf of Government, with powers delegated by the Government. But there is a distinction between independence from Government and independence from political influence in a narrower sense. The powers of the central banking system should not be a pawn of any group or faction or party, or even any particular administration, subject to political pressures and its own passing fiscal necessities [Letter to Robert R. Bowie, in Meltzer 2003: 738].
- Topic:
- Government
- Political Geography:
- New York
16. Federal Reserve Independence: Reality or Myth?
- Author:
- Gerald P. O'Driscoll Jr. and Thomas F. Cargill
- Publication Date:
- 10-2013
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The Federal Reserve was founded in 1913 during the Wilson administration to end banking panics and depressions, and was part of the Progressive agenda for a more activist role of government (see Kolko 1963). By the 50th anniversary, the conventional wisdom was that the Fed's performance was overall satisfactory, especially after the Treasury-Federal Reserve Accord of 1951 that permitted independent monetary policy. While the decision to double reserve requirements in 1937 was judged a policy error, the Federal Reserve was not held responsible for the Great Depression.
- Topic:
- Government
17. Lessons from the European Crisis
- Author:
- Jurgen Stark
- Publication Date:
- 10-2013
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- It was one of the author's predictions in 1998 that the euro zone would end up teaching us more about economics compared to what economics could teach us about the euro zone. While many of the author's predictions of that year did not hold, including the forecast that the euro would challenge the dollar as the world's foremost reserve currency, this particular prediction ultimately turned out to be correct. A monetary union is a hybrid between a fixed exchange rate system and a unitary state, one that is fully captured neither with closed-economy macro models nor classical international macro models of fixed exchange rates.
- Topic:
- Government
- Political Geography:
- Europe
18. The New Monetary Economics Revisited
- Author:
- David Cronin
- Publication Date:
- 10-2012
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- This article revisits the key conceptual aspects of the New Monetary Economics (NME) by examining the idea of “monetary separation” and objections raised against it. So long as a dominant role for base money in exchange exists, using it to provide the unit of account remains advantageous and is likely to outweigh any mooted benefits of separation. Recent quantitative analysis, however, shows the transaction demand for government base money to be falling, a development that can be expected to continue in the years ahead. The passage of time thus seems to be weakening the principal basis on which monetary separation has been criticized—namely, the superiority of base money in payments. That development fits into the history of money told by Austrian economists, which emphasises payment practices evolving over time in response to technological improvements and market forces.
- Topic:
- Government
- Political Geography:
- Europe, Germany, Cyprus, and Luxembourg
19. Starving the Beast Revisited
- Author:
- Masoud Moghaddam
- Publication Date:
- 10-2012
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The determinants of government budget deficits have been studied extensively, especially during the years in which the discrepancy between federal income taxes and expenditures has widened. In that respect, it is of interest to explore the causal relationship between government revenues and expenditures. If the direction of causation is from taxes to spending, then enjoying tax cuts without cutting expenditures necessitates starving the beast, as suggested by Milton Friedman (1978) and confirmed by a number of studies including Garcia and Henin (1999), and Chang, Liu, and Caudill (2002). On the other hand, if a tax cut is perceived by rational agents to be a cut in the cost of public goods, then spending would increase. In that case, taxes and spending are inversely related. Support for that relationship—the so-called fiscal illusion hypothesis—is provided by Wagner (1976), Niskanen (1978, 2002, 2006), and more recently by New (2009) and Young (2009). There are also a few studies in which no significant causal relation between tax and spend variables has been reported (e.g., Baghestani and McNown (1994).
- Topic:
- Government
20. The Scope of Government in a Free Society
- Author:
- James A. Dorn
- Publication Date:
- 10-2012
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The purpose of this article is to delineate the legitimate functions of government in a free society. This exercise differs from determining the “optimal” size of government, which economists have estimated at 15 to 30 percent of gross domestic product. James Madison, the chief architect of the U.S. Constitution, was not primarily looking for an engine of economic growth; he was seeking an institutional design to limit the powers of government and protect individual rights. People would then be free to pursue their happiness and, in the process, create wealth.
- Topic:
- Government
- Political Geography:
- United States
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