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161. The Role of China in the U.S. Debt Crisis

Author:
James A. Dorn
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In 2001, the U.S. gross public debt was about $6 trillion; a decade later it was $14 trillion; by the end of 2012 it exceeded $16 trillion. A large part of that increase was absorbed by foreign holders, especially central banks in China and Japan. With the U.S. government gross debt ratio now in excess of 100 percent of GDP, not including the trillions of dollars of unfunded liabilities in Social Security and Medicare, it is time to stop blaming China for the U.S. debt crisis.
Political Geography:
United States, Japan, and China

162. Diminishing Quality of Fiscal Institutions in the United States and European Union

Author:
Thomas Grennes
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The value of government debt relative to the size of the economy has become a serious problem, and the problem is likely to grow in the future. Total debt of the U.S. government relative to gross domestic product increased substantially since the financial crisis and the Great Recession that began in 2007, but the debt ratio has been increasing since 2001. Gross debt relative to GDP increased from 55 percent in 2001 to 67 percent in 2007 to 107 percent in 2012. Comparable figures for debt held by the public (net debt or gross debt minus debt held by various government agencies) were 80 percent in 2011 and 84 percent in May 2012 (IMF 2012). As a result, the debt ratio is now the highest in U.S. history, except for World War II, when it reached 125 percent of GDP (Bohn 2010). U.S. debt is also high relative to the debt of other high-income countries, and projections of future debt place the U.S. government among the world's largest debtors (IMF 2011, 2012; Evans et al. 2012). Gross debt consists of all the bonds issued by the U.S. Treasury, but a broader measure that includes contingent debt results in a much larger debt (Cochrane 2011). Contingent debt includes unfunded obligations related to Social Security, Medicare, Medicaid, and loan guarantees to agencies such as Fannie Mae and Freddie Mac, and these obligations are so large that they have been described as a “debt explosion” (Evans et al. 2012). The sovereign debt crisis of the European Union has similarities to the U.S. debt problem, but it also has significant differences, as will be shown below. Interestingly, the poorer countries of the world that have frequently experienced debt problems in the past, have avoided major debt problems so far.
Topic:
Financial Crisis
Political Geography:
United States and Europe

163. Economic Freedom and Financial Development: International Evidence

Author:
R.W. Hafer
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article arises from two related research programs. One examines the relationship between financial development and economic growth. The basic conclusion from this work is that countries that experience greater financial development also experience faster rates of economic growth and higher levels of income per capita (King and Levine 1993a, 1993b; Levine and Zervos 1998; Rousseau and Wachtel 1998; Levine et al. 2000; and Levine 2003). Under this umbrella also are studies that test for the role of property rights and regulation on financial development. Shehzad and De Haan (2008) find that financial liberalization—a reduction in regulations—reduces the probability of a banking crisis and, therefore, promotes economic growth. Baier et al.(2012) find that countries with relatively low levels of regulation—more economic freedom—are less likely to experience a financial crisis in the near future (five years out) than countries with more regulation. Like De Haan et al. (2009), Baier et al. find that in the period immediately following a crisis there generally is a diminution of economic freedom that stems from increased regulation, portending slower economic growth in the future.

164. School Choice and Development: Evidence from the Edgewood Experiment

Author:
John Merrifield and Nathan L. Gray
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
On April 22, 1998, the Children's Educational Opportunity Foundation announced the availability of CEO Horizon Scholarships to residents of the Edgewood Independent School District (EISD) in San Antonio, Texas. The CEO Foundation did not limit eligibility to students with proof of superior academic talent, so the scholarships were really privately funded tuition vouchers. As such, we shall refer to them as the Edgewood Voucher Program. The EVP was a working model of Milton Friedman's (1955, 1962) original idea for a universal voucher program, except that it was set to last only 10 years. This article analyzes the EVP's immediate economic development effects, including the impact on the property tax base, housing growth and values, and business formation. We begin with an overview of the EVP, review the existing literature, describe the benchmark for our impact estimates, and then discuss the estimates and their significance for universal tuition vouchers.
Topic:
Development

165. Incredible Commitments: Why the EMU Is Destroying Both Europe and Itself

Author:
George Selgin
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
When the merits of a European Monetary Union were first being debated, many skeptics fell into one of two camps. The first camp consisted of “Keynesians” (for example, Eichengreen and Bayoumi 1997, Salvatore 1997) who, referring to the theory of optimal currency areas, doubted that Europe constituted such an area, and believed that the proposed monetary union would eventually fall victim to country-specific (“idiosyncratic”) shocks. Unemployment and other burdens stemming from such shocks would, these critics argued, eventually force the monetary authority to either abandon its commitment to price-level stability in order to offer relief to adversely affected members, or cause the members to abandon the union so as to be able to realign their exchange rates.
Political Geography:
Europe

166. IMF Subsidies, Cancellations, and Resumptions: New Empirical Evidence

Author:
Adrian Urbaczka and Roland Vaubel
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
For a long time, the International Monetary Fund has been criticized for subsidizing its credits. According to Walter Bagehot (1873), a lender of last resort ought to “lend freely but at a penalty.” Otherwise moral hazard results (see Dreher and Vaubel 2004). Bakker and Schrijvers (2000) and the Saxton Report (2002) have presented estimates of the subsidy element in IMF lending. In this article, we present an improved and updated calculation. We also present evidence on another criticism of IMF policy: that it fails to enforce compliance with policy conditions. The IMF claims that it cancels its programs if debtor governments do not honor their policy commitments. We show that cancellations due to noncompliance tend to be followed by new programs very soon.

167. Kill or Capture: The War on Terror and the Soul of the Obama Presidency

Author:
Benjamin H. Friedman
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The Republican Party at least has the decency not to get its civil libertarian supporters' hopes up. Bemused tolerance and the odd Ron Paul appearance are about all the encouragement they get. Democratic civil libertarians, by contrast, suffer from relevance. Like other interests large enough to matter in primary elections but loyal enough to betray later, they are seduced and then scorned, especially by presidents. Their disappointment is harsher because it is less expected.
Topic:
War

168. Knowledge and Cooperation: A Liberal Interpretation

Author:
Richard L. Gordon
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Daniel B. Klein's fascinating exposition of the case for limited government argues that understanding of the complexity of knowledge and its use to coordinate human actions indicates the impossibility of successful interventions by governments. His basic point is that knowledge is not simply something that always can be purchased on the open market and readily employed. People may create the knowledge that they utilize, and it always must be interpreted properly. Intervention kills such initiatives.

169. The Case for Polarized Politics: Why America Needs Social Conservatism

Author:
David Lampo
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
It might seem odd that, in a time when political pundits routinely condemn the rampant if not unprecedented polarization in American politics, one writer would try to make the case that polarized politics is a good thing, but that is indeed what former Reagan advisor Jeffrey Bell attempts in The Case for Polarized Politics: Why America Needs Social Conservatism . His arguments to justify an outspoken social conservatism as necessary to both the success of the Republican Party and the long-term success of what he calls "American exceptionalism," however, fall short on several levels.
Political Geography:
America

170. Editor's Note: A Tribute to William A. Niskanen

Author:
James A. Dorn
Publication Date:
10-2012
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This issue of the Cato Journal is dedicated to William Niskanen, who passed away on October 26, 2011, at the age of 78. From 1985 to 2008, Bill served as chairman of the Cato Institute and a full-time economic scholar. He continued working as chairman emeritus and distinguished senior economist until his death. He was also on the editorial boards of Regulation magazine and the Cato Journal.
Topic:
Disaster Relief