Archive for the 'Institutions' Category

Instead of the Fed

November 5, 2013

by Jerry O’Driscoll

 

For the month of November, Cato Unbound features an essay by me on “The Fed at 100.” Over the course of a week, there will be comments by Larry White, Scott Sumner and Jerry Jordan. I will respond to these as appropriate.

“End the Fed” has become a political slogan. Long before that, however, there was a serious academic literature on the prospects for competitive banking. I examine that literature in my posting. One interesting aspect of that literature is that important papers on free banking came out of Federal Reserve banks in the 1980s.

I argue that “the literature on free banking demonstrates the viability of private, competitive banking without a central bank.” But we now have a system of central banking almost everywhere. The fact that the road not taken would have been a viable path does not mean that we can retrace our steps and take that path now.

I devote roughly half the posting to consideration of what it would take to end the Fed. It would be a formidable but not impossible task. It is generally acknowledged that to be viable, a system of competing currencies would need convertibility into something that is in inelastic supply. Historically that has been a commodity, and I suggest gold is as good as any (though many disagree about that). What are the prospects for a return to a commodity standard?

Central banking is historically linked to governments running deficits and needing them to be financed. That is equally true today. Central banks cannot be abolished until permanent deficits are abolished, and governments are shrunk down in size. What are the prospects for that?

I have just returned from a very important conference at the Mercatus Institute at George Mason University on “Instead of the Fed: Past and Present Alternatives to the Federal Reserve System.” As the title suggests, alternatives to central banking in the past and the future were discussed. All three discussants of my posting also participated in important roles at that conference. I was a discussant of three papers, including one by Scott Sumner. So I imagine we will be continuing our dialog at Cato Unbound.

One of the most interesting discussions was among advocates of Fed abolishment and of Fed reform. All agreed that we need better monetary policy now and into the future, regardless of our differences on the issue of free banking versus central banking. I will observe that it was encouraging that people as diverse as George Selgin, Scott Sumner, Ben McCallum and I were able to arrive at a consensus.

I invite everyone to visit Cato Unbound this month and follow the conversation.

 

The Government Shutdown and the Debt Default Issue: The Dreadful Lesson

October 18, 2013

by Mario Rizzo

I grant that the government “shutdown” and the perceived threat of default on the debt was a public relations disaster for the Republican Party. I think that the shutdown problems, like those of the Sequester, were grossly exaggerated by the traditional media and as well as by various left-wing hysterics. Neither of these spending or service adjustments affected the overwhelming majority of our (excessive) government spending.

The default problem could have been much worse. It would have presented the following options: Delay payments to bond holders, axe discretionary spending, and/or cut entitlement spending. Another possibility would have been to continue borrowing anyway, perhaps provoking a Constitutional problem. I believe that had this continued for only a few days not much would have happened that would not have been quickly undone afterwards. However, none of this activity would have served the interests of reducing the size and scope of government.

So what is the “dreadful lesson”? It is this. We do not know how to reduce the size of our Leviathan state. Tea Party critics are correct, for example, that the longer ObamaCare stays unaltered or unrepealed the harder it will be to get rid of it. This is not because it will suddenly turn out to be good but because, as with so many other laws, special interests will benefit and will not easily yield.  How well have the efforts to find alternatives to Social Security and Medicare gone?

Provoking crises will not work. The current Republican Party does not seem competent enough to devise clever political methods to accomplish the goal of smaller government, even if it were truly willing to do so. (And that is debatable.)

So we are left, politically speaking, with nothing. How dreadful.

The Euro: a Step Toward the Gold Standard?

April 22, 2013

by Andreas Hoffmann (University of Leipzig)

In a recent piece Jesus Huerta de Soto (2012) argues that the euro is a proxy for the gold standard. He draws several analogies between the euro and the classical gold standard (1880-1912). Like when “going on gold” European governments gave up monetary sovereignty by introducing the euro. Like the classical gold standard the common currency forces reforms upon countries that are in crisis because governments cannot manipulate the exchange rate and inflate away debt. Therefore, to limit state power and to encourage e.g. labor market reforms he views the euro as second best to the gold standard from a free market perspective. Therefore, we should defend it. He finds that it is a step toward the re-establishment of the classical gold standard.

There has been much criticism of the piece that mainly addresses the inflationary bias of the ECB. I actually agree with much of it. In particular, imperfect currency areas have the potential to restrict monetary nationalism. This can be welcomed just as customs unions that allow for free trade (at least in restricted areas). But I have some trouble with De Soto’s conclusions and the view that adhering to the euro (as did adhering to gold) gives an extra impetus for market reform – in spite of the mentioned e.g. labor market reforms in Spain. Read the rest of this entry »

Cyprus

April 1, 2013

By Jerry O’Driscoll

 

Cyprus is the latest country to succumb to the financial rot in the European Union. Once a banking center, its citizens now cannot pay for their own imports. Exporters are demanding cash only for goods sent to Cypriote businesses. Credit has dried up. Businesses are closing because they have no goods to sell.

The economic crises in the various countries have fallen into two types. In the first type, highly indebted governments experienced fiscal crises and could no longer service their debts. Banks had lent to these governments and their condition was impaired by the value of the government bonds falling.  The economies went into recession, which was aggravated by higher taxes and enhanced collection of taxes. Greece is the poster child for a financial and economic crisis begat by a fiscal crisis. Read the rest of this entry »

Raise Middle Class Taxes Now!

December 26, 2012

by Mario Rizzo

I now favor expiration of the Bush era tax rates for everyone.  Why? Because the only way to curb spending in the long run is to make as large a number of Americans as possible truly feel the consequences of the expenditures they appear to desire.

If Americans saw the cost of the gigantic welfare state in their paychecks, they would, I am confident, radically re-evaluate the expenditure side of the situation we are in. Then when someone comes up with a genius idea for spending, the people would think: Is it worth higher taxes? Might I not spend it better on my family, my church – or even – on… champagne? Read the rest of this entry »

THE WILL OF THE PEOPLE

December 11, 2012

by Mario Rizzo

Some people rest the case for representative democracy on the idea that its decisions express the “will of the people.” Those who believe this have never thought deeply about what they are saying. I am inclined, in response to these believers, to use my favorite paraphrase of Ludwig Wittgenstein, “You can mouth the words, but you cannot think the thought.”

What is the will of the people?  Whatever it is, it is certainly not without contradictions, illusions, misinformation, and wishful-thinking – just like a lot of individual thought. But as an aggregation of individual thought it is a construct used to justify all sorts of things. In some people’s minds, this construct has claim to moral authority. Read the rest of this entry »

Ban the Traffic Light?

August 11, 2012

by Gene Callahan

Joseph Fetz’s blog alerted me to an interesting video comparing the same intersection in New Zealand on a day when its traffic light was out versus the next day with the light back in operation. The video certainly illustrates the fact that people’s ability to achieve spontaneous order can be greater than one might suspect at first: many people would guess that the day without the light would be chaotic by comparison to the one with it, but traffic actually seems to flow better with the light off. Read the rest of this entry »

Spontaneous or Planned: A Sharp Dichotomy, or a Gradient?

July 18, 2012

by Gene Callahan

I am writing a solicited comment for Dan Klein’s new book, Knowledge and Coordination: A Liberal Interpretation, for the journal Studies in Emergent Order. This is an especially interesting task for me, as Klein’s topic is obviously vital to my preliminary work on social cycles. And Dan is always an intelligent and engaging writer, so this should be a fun project. I find it helpful, in the interest of getting a paper done, to blog my thoughts as I go along, so here we go:

The first thing of importance I have noted is Klein, at least in the opening chapter, seems to posit a sharp dichotomy between spontaneous orders and planned orders. He uses the example of roller skaters in a rink: either they are each skating purely as they wish, or their movements are entirely planned by a “wise” planner. (This may well be modified by Klein later, but even if so, I have seen others treat this topic as if this was a simple dichotomy, so my remarks are, I think, worth making anyway.)

But real social orders are rarely (ever?) of either extreme. The extremes are ideal types, and real orders more or less instantiate the types. Read the rest of this entry »

Libraries Linking Past to Future

June 14, 2012

by Chidem Kurdas

A trustee of the New York Public Library, Robert Darnton, defends in the New York Review of Books the controversial plan to revamp the library’s Fifth Avenue building.  The issue goes beyond one building – however iconic – and one institution. Read the rest of this entry »

Elinor Ostrom, RIP

June 12, 2012

by Mario Rizzo

This will not be a review of her scholarly contributions. I have already made some attempt at that in a post shortly after her richly-deserved Nobel prize in economics. And I also link an announcement of her death here. 

I met Professor Ostrom at a celebration of her work at GMU after she won the prize. I was fortunate enough to be invited to dinner with her and just a few other people afterwards. I was so positively impressed by her, first, as a human being. She was kind, funny and liked a good scotch. (I stuck with the wine.) As a scholar, she was not only brilliant but she was non-dogmatic about methods, willing to learn from others, and had a wonderful combination of humility and self-confidence. She knew how important a good story is to the advancement of science, and not just heuristically.

She and Peter Boettke apparently “clicked” academically. After all, he saw her importance and published a book about her work before the Nobel Committee recognized her (and 99% of all economists ever heard of her!).

At the end of obituaries it is customary to say “she will be missed.” But, really, this time she will be missed by more than her family and friends, but by all of those who learned from her writings or from her in person. We carry on —  impoverished by her death, enriched by her life.

Follow

Get every new post delivered to your Inbox.

Join 1,715 other followers