Topic: Cato Publications

China Makes the Right Move

Yesterday, China’s Central Bank reduced bank reserve requirements for large banks by 50 basis points to 19.5%. The Chinese know that the nominal level of national income is determined by the magnitude of the money supply. They also know that banks produce the lion’s share of China’s money. Indeed, banks produce 77% of China’s M2 money.

As shown in the accompanying chart, the average annual growth rate of China’s money supply since January 2004 has been 17.45%. At present, the annual growth rate for the money supply has slumped to 11%. China’s reduction in the banks’ reserve requirements is designed to push money growth back up towards the trend rate so that an economic slump is avoided. China has made the right move.

Banks Are ‘Under Assault’

J.P. Morgan Chase’s CEO Jamie Dimon has it right when he asserts that banks are “under assault.

This has put a damper on the source of 80 percent of the U.S. money supply, broadly measured. The CFS Divisia M4 is growing at an anemic 2.2 percent on a year-over-year basis.

Since the course of nominal national income is determined by the money supply, it’s not surprising that U.S. growth is also anemic. Final Sales to Domestic Purchasers, the best proxy for U.S. aggregate demand, has still not reached its trend rate of growth. In the face of these facts,

I don’t anticipate that the Fed will (or should), “tighten” at its Federal Open Market Committee meetings on January 27–28. Nor do I think the Fed will tighten as soon as most people think. 

The World Misery Index: 108 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on “misery.”

Below the jump are the index scores for 2014. Countries not included in the table did not report satisfactory data for 2014.

The five most miserable countries in the world at the end of 2014 are, in order: Venezuela, Argentina, Syria, Ukraine, and Iran. In 2014, Argentina and Ukraine moved into the top five, displacing Sudan and Sao Tome and Principe.

The five least miserable are Brunei, Switzerland, China, Taiwan, and Japan. The United States ranks 95th, which makes it the 14th least miserable nation of the 108 countries on the table.

Cato Scholars: Ahead of the Curve

Congratulations to former Treasury secretary Robert Rubin, who has become concerned, as he writes in the Wall Street Journal, that

The U.S. rate of incarceration, with nearly one of every 100 adults in prison or jail, is five to 10 times higher than the rates in Western Europe and other democracies, according to a groundbreaking, 464-page report released this year by the National Academy of Sciences. America puts people in prison for crimes that other nations don’t, mostly minor drug offenses, and keeps them in prison much longer.

Of course, if he’d been following the work of the Cato Institute, he could have read about the problems of drug prohibition and mass incarceration in this 2009 symposium at Cato Unbound, this 2013 paper on incarceration rates in the United States and other countries, this Washington Post article by Tim Lynch in 2000 when the U.S. prison population first exceeded 2 million, or indeed my 1988 New York Times article on the excessive arrests and intrusions on freedom in the drug war.

Meanwhile, on the same page of Friday’s Wall Street Journal, former senator James L. Buckley calls for ending federal aid to the states, an idea central to his new book Saving Congress from Itself and inspired by the work of Cato’s Chris Edwards.

A Far-Out Cato Unbound

This month at Cato Unbound, we’re talking about the Search for Extra-Terrestrial Intelligence, or SETI.

Why’s that, you ask?

Several reasons, really. First, although it’s not exactly a hot public policy topic, it will certainly become one if we ever actually find anything. But that’s hardly where the importance of the topic ends.

Much more interesting to me at least is that SETI can serve as a springboard for discussing all kinds of important concepts in public policy. Our contributors this month - David Brin, Robin Hanson, Jerome H. Barkow, and Douglas Vakoch - have talked about the open societycost-benefit analysisevolutionary psychology, the hubris of experts, the narcissim of small differences, and even Pascal’s Wager (and what’s wrong with it)

So… lots of interesting stuff, particularly for libertarians who are interested in public policy.

Iran’s Economy, With and Without a P5+1 Agreement

The haggling between Iran and the so-called P5+1—the permanent members of the United Nations Security Council, plus Germany—is scheduled to come to a close on Monday, November 24th. The two parties each want different things. One thing that Iran would like is the removal of the economic sanctions imposed on it by the United States and its allies.

After decades of wrongheaded economic policies, Iran’s economy is in terrible shape. The authoritative Economic Freedom of the World: 2014 Annual Report puts Iran near the bottom of the barrel: 147th out of the 152 countries ranked. And the “World Misery Index Scores” rank Iran as the fourth most miserable economy in the world. In addition to economic mismanagement, economic sanctions and now-plunging oil prices are dragging Iran’s structurally distorted economy down. So, it’s no surprise that Iran would like one of the weights (read: sanctions) on its economy lifted.

Just how important would the removal of sanctions be? To answer that question, we use the Institute of International Finance’s detailed macroeconomic framework. The results of our analysis are shown in the table and charts below the jump.