CIAO DATE: 04/2011
Volume: 31, Issue: 1
Winter 2011
Markets and Morality (PDF)
Dwight R. Lee, J.R. Clark
Adam Smith was a moral philosopher, and economics clearly began as a discipline concerned with both normative and positive considerations. Over time, however, as economics became more “scientifi c,” positive analysis of the consequences of economic activity increasingly crowded out normative analysis of the morality of that activity. It is now common for economists to boast that economics is “value free.” 1 The problem is not with positive economics. Without the ability of economic analysis to make reasonable predictions about the consequences of policies and to provide coherent explanations of observed economic phenomena, there would be no value to economics regardless of the value system applied. But without recognizing that moral values are embodied in economic analysis, economists severely limit their ability to understand economic phenomena and to communicate effectively what they do understand. Furthermore, when economists dismiss the moral dimensions of their discipline, they leave the fi eld to others who have an endless supply of pronouncements on the morality of economics in general, and the market order in particular, that are as logically appalling as they are publicly appealing
Envisioning a Free Market in Health Care (PDF)
D. Eric Schansberg
Although President Obama and the Democratic Congress were able to pass landmark health legislation, their efforts to reform health care ran into predictable political roadblocks. In a severe recession, taxing business and labor is obviously not helpful to economic recovery. Moreover, an array of overreaching sales pitches—claims of additional coverage without additional costs or rationing—piqued the cynicism of the general public. Given historical spending and budget defi cits, an expensive new federal program is diffi cult to swallow. Mandates and restrictions on health insurance can only exacerbate the problem of rapidly rising health care costs (Tanner 2010). Perhaps most important, although many people express dismay with the health care system, they are generally content with their own health care and health insurance. They might be willing to help others get care or insurance, but become quite concerned if reform might include a dramatic change in their own status
Why Some States Fail: The Role of Culture? (PDF)
Claudio D. Shikida, Ari Francisco de Araujo Jr, Pedro H.C. Sant'Anna
There are many studies on the relationship between economic development and institutions. Institutions can be classifi ed as formal or informal. This article emphasizes the importance of the relationship between culture (informal institutions) and the quality of public goods supplied by the government, using a measure of state failure: the Failed States Index. The results suggest that culture is more important than formal institutions in explaining differences in the degree to which states fail
Giving Up on Foreign Aid? (PDF)
Gustav Ranis
Andrei Shleifer (2009) and David Skarbek and Peter Leeson (2009) offer devastating critiques of foreign aid. Following Peter Bauer’s and, more recently, William Easterly’s lead, they assert that if aid has any impact at all it is most likely to do harm. The only exception, offered by Skarbek and Leeson, is that it may do some good at the micro-project level. I would like to raise what is rapidly becoming a contrarian point of view
What Aid Can't Do: Reply to Ranis (PDF)
David B. Skarbek, Peter T. Leeson
Gustav Ranis addresses our recent article in this journal where we argued that foreign aid is unable to solve the economic problem and thus unable to make poor countries rich (Skarbek and Leeson 2009). The following quotations from his article summarize his main objections to our argument: Instead of the MCC’s [Millennium Challenge Corporation’s] present grants-for-projects approach, favored by Easterly and Skarbek and Leeson, policy-based program lending or grants should be relied upon. Skarbek and Leeson are ready to throw the baby out with the bath water. While foreign aid as presently practiced is admittedly fl awed, there is no reason not to encourage at least this promising new window [a modifi ed MCC] as a potentially valuable component of our long-term foreign policy arsenal [Ranis 2011]
An Austrian Rehabilitation of the Phillips Curve (PDF)
Robert F. Mulligan
William Niskanen (2002) estimated a Phillips curve for the United States using annual 1960–2000 data. By adding one-yearlagged terms in unemployment and infl ation, he was able to show that this familiar equation is misspecifi ed. In his improved specifi - cation, Niskanen found that the immediate impact of infl ation is to reduce unemployment, confi rming the traditional understanding of the Phillips-curve relationship, but also fi nding that after an interval as short as one year infl ation has generally been followed by increased unemployment. Though Niskanen was perhaps unaware of it, his results lend strong support to the Austrian model of the business cycle. In that model, credit expansion results in a temporary but unsustainable expansion. Unemployment is lowered in the short run, but once the policy-induced malinvestment is recognized, total output and income will be permanently reduced, and unemployment will increase
Deposit Insurance and Banking Stability (PDF)
Kam Hon Chu
Many fi nancial systems were plagued by bank runs or subject to the risk of contagion when the recent fi nancial tsunami unfolded. The runs on the U.S. banks Countrywide and IndyMac, Britain’s Northern Rock, and Hong Kong’s Bank of East Asia, among others, occurred about a few years ago, but they are still vivid to us. These runs were, of course, the symptoms rather than the root cause of the fi nancial tsunami. In response to the most severe systemic global fi nancial crisis since the Great Depression, policymakers and regulators in many countries have implemented various drastic regulatory measures to rescue the fi nancial systems from meltdowns and to avert deep economic downturns. Such measures vary from country to country, but generally speaking they include governments’ takeovers of banks or capital injections, quantitative easing techniques, provisions of liquidity by lax lender-of-lastresort lending, lower discount rates, and more generous deposit insurance
An Analysis of the Financial Services Bailout Vote (PDF)
Jim F. Couch, Mark D. Foster, Keith Malone, David L. Black
Washington’s remedy to the fi nancial problems that began in 2008 was the Troubled Asset Relief Program (TARP)—the socalled bailout of the banking system. Whatever its merits, it was, for the most part, unpopular with the American public. Lawmakers, fearful that the economy might actually collapse without some action, were likewise fearful that action—in the form of a payout to the Wall Street fi nanciers—would prove to be harmful to them at the polls. Thus, politicians sought to assure the public that their vote on the measure would refl ect Main Street virtues, not Wall Street greed. Members of Congress, addressing the public’s misgivings about the bailout, asserted that they were wrestling with diffi cult issues such as fairness and equity, banking regulation, executive pay, job losses, moral hazard, 401(k) values, and the proper role of the state. Furthermore, they argued, these complex issues were diffi cult for the public to understand, and legislators, vigilant in carrying out their duty, were weighing the pros and the cons in order to cast a vote that was in the best interest of the nation
Restructuring the U.S. Postal Service (PDF)
Robert Carbaugh, Thomas Tenerelli
From 1775 when Benjamin Franklin was appointed as the fi rst postmaster general of the United States, the agency known as the U.S. Postal Service (USPS) has grown to become an institution that delivers about half of the world’s mail in rain, snow, and the dark of night. Employing about 656,000 workers and 260,000 vehicles and operating about 38,000 facilities nationwide, the USPS is the second-largest civilian employer in the United States, after WalMart. If the USPS was a private sector company, it would rank 28th in the 2009 Fortune 500 (U.S. Postal Service 2010). The USPS is obligated to provide a uniform price and quality to all Americans, irrespective of geography. Although the USPS is often mistaken for a government-owned corporation such as Amtrack, it is an independent branch of the federal government; it is controlled by a board of governors and a postmaster general and it is regulated by the Postal Regulatory Commission. The USPS is structured to operate like a business, fi nancing its operations through the sale of postal products and receiving no direct taxpayer subsidies
Kurt Schuler
Carmen Reinhart and Kenneth Rogoff’s wide-ranging, quantitative study of fi nancial crises is a landmark work. Reinhart and Rogoff have taken advantage of the advances of the last 20 years in economic history, personal computers, and the Internet to assemble a large data set covering most countries of any importance for the world economy. They are the fi rst researchers to base their generalizations about fi nancial crises on data that combine geographic breadth with great historical depth. The “this time is different syndrome” is the mistaken belief that fi nancial crises happen to other people at other times and places, but not to us here and now, because we are doing things better, we are smarter, and we have learned from past mistakes, so old rules of valuation no longer apply. The book has six parts: a description of the defi nitions and sources underlying the analysis; sovereign external debt crises; domestic debt crises; banking crises, infl ation, and currency crashes; the recent U.S. subprime mortgage crisis and its worldwide consequences; and a summary of what we have learned. There are also nearly 100 pages of data appendixes, including historical summaries of banking crise
Afghanistan: A Cultural and Political History by Thomas Barfield (PDF)
Malou Innocent
In the Western mind, Afghanistan conjures up a rugged land of fractious, tribal people. From Alexander the Great and Genghis Khan, to Tamerlane and Mughal emperor Babur, virtually no conqueror has escaped “the graveyard of empires” unscathed. Even modern, industrial empires—the British and the Russian— suffered heavy losses. Why have foreign attempts to conquer Afghanistan proved so ineffective? Why did the U.S. invasion fail to bring stability
The Ideological Origins of American Federalism (PDF)
Ilya Somin
As has often been the case in American history, federalism is once again a major focus of political debate. Numerous recent political confl icts focus at least in part on the constitutional balance of power between the states and the central government. The lawsuits challenging the recently passed Obama health care plan, the federal bailout of state governments during the current economic crisis, and the confl icts over social issues such as medical marijuana and assisted suicide are just a few of the more prominent example
The Economics of Microfinance by Beatriz Armendariz and Jonathan Morduch (PDF)
Bryan Barnett
It is one of the sad facts of recent human history that the economic
prosperity enjoyed by so many remains unknown to most of the rest. The causes of poverty have long been debated and much
has been spent in the effort to ameliorate it. Reliable estimates
suggest as much as $2.3 trillion has been spent over the last
several decades, most of it in the form of sponsored aid programs
conceived and pursued by governments and large foundations in
developed countries. Despite this investment, however, poverty
remains widespread and has worsened in many places, especially
in Africa. These basic facts now fuel a vigorous debate over the
scale and ultimate value of traditional aid programs and a search
for more effective solutions