That’s Right: “Famously Sound and Famously Stable”

In one of my recent posts I observed, not only that Canada’s ca. 1913 currency and banking system was sound and stable, but that it was “famously” so. Many of my readers may wonder about that description. After all, relatively few people today are aware of Canada’s having had such a successful system; and most current writings on U.S. monetary history don’t even refer to it. That one can read one official Federal Reserve account after another of that history, and especially of the Fed’s origins, without hearing so much as a whisper about Canada’s having had a well-working banking and currency system, albeit one without a central bank, goes without saying.

But the story was far different a century or more ago. Back then, just about any U.S. adult who paid attention to current events knew all about Canada’s smoothly-working monetary system, and also about various reformers’ efforts to replicate it’s success in the U.S. Where’s my proof? It’s all right here, in hundreds of articles that appeared in scores of U.S. newspapers between 1890 and 1913.

Read ‘em, or some of them at least. And weep.

No, There Isn’t A “Dred Scott Case” of Our Times

Former Pennsylvania Senator Rick Santorum, who has declared “I am not a libertarian, and I fight very strongly against libertarian influence within the Republican Party and the conservative movement,” is also unlikely to win any prizes for temperateness of rhetoric. Last night at the Fox News debate he likened the Supreme Court’s jurisprudence on gay marriage to the infamous case of Dred Scott v. Sandford, a line he’s been using for a while.

A Blinkered Foreign Policy Debate

Foreign policy didn’t get a lot of air time in last night’s GOP debate, which often seemed to focus primarily on Donald Trump and the fact that John Kasich’s dad was a mailman. The candidates appeared worryingly ill-prepared to discuss foreign policy issues, with confused and misleading statements, incorrect facts, and a few truly bizarre comments.

There is a lot of great news coverage - see here or here for examples - highlighting these statements, from Jim Gilmore’s call for the U.S. to create a Middle Eastern NATO, to Ted Cruz’s decision to describe the opinions of the Chairman of the Joint Chiefs, Gen. Martin Dempsey, as nonsense. At least one candidate conflated Iran with ISIS. The first debate included a baffling discussion of ‘cyberwalls,’ a never-before heard term that seemed to encompass both the Great Firewall of China, and the refusal of private companies like Google to hand over data to the U.S. government.

The bigger problem with the debate, however, was the mass oversimplification of foreign policy. Only one candidate, Carly Fiorina, acknowledged that foreign policy can be complicated, a statement immediately undermined when she noted that some issues are black and white, and promised to tear up the Iran deal on her first day in office. Unfortunately, foreign affairs is actually complex. Take the Middle East, where the United States is involved in conflicts both in opposition to, and in alignment with Iranian proxies. Or our relationship with Russia, which isn’t limited to confrontation in Ukraine, but includes cooperation on the Iranian nuclear deal and Syrian issues. Debates, with their reliance on manufactured soundbites, aren’t the best place to delve into these complexities. But no candidate on the stage gave any indication of a willingness to engage with the complicated nuances of foreign policy.

Rubio Was Right on Fed Ed Power Grabbing

In last night’s GOP presidential debate, Sen. Marco Rubio (R-FL) said in response to a question about the Common Core national curriculum standards that, sooner or later, the Feds would de facto require their use. If you know your federal education – or just Common Core – history, that’s awfully hard to dispute.

Said Rubio: “The Department of Education, like every federal agency, will never be satisfied. They will not stop with it being a suggestion. They will turn it into a mandate. In fact, what they will begin to say to local communities is: ‘You will not get federal money unless you do things the way we want you to do it.’”

That is absolutely what has happened with federal education policy. It started in the 1960s with a compensatory funding model intended primarily to send money to low-income districts, but over time more and more requirements were attached to the dough as it became increasingly clear the funding was doing little good. Starting in the 1988 reauthorization of the Elementary and Secondary Education Act (ESEA) we saw requirements that schools show some level of improvement for low-income kids, and those demands grew in subsequent reauthorizations to the point where No Child Left Behind (NCLB) said if states wanted some of the money that came from their taxpaying citizens to begin with, they had to have state standards, tests, and make annual progress toward 100 math and reading “proficiency,” to be achieved by 2014.

Cato Scholars React to Last Night’s Republican Presidential Primary Debates

Last night many Cato scholars watched and live-tweeted the Republican presidential primary debates. Missed the conversation? Read our scholars’ statements below. 

“Unfortunately, neither the Fox questioners nor the candidates spent much time discussing how to limit government or expand freedom. There was too much focus on keeping immigrants out of America. Bush and Walker seemed calm and stable, and in the long run that may be what voters want. Christie and Paul both made their points strongly, including one epic confrontation, appealing to different parts of the electorate. Somebody should just set up the two of them to debate. The candidates kept talking about the ‘weak’ U.S. military. The United States spends more on the military than China, Russia, Great Britain, France, Japan, India, Saudi Arabia, Germany, Brazil, and the next 4 countries combined.” 

David Boaz, Executive Vice President of the Cato Institute 

“This was another disappointing night for those seeking a smaller, less costly, less intrusive government. Depending on the candidate, we heard calls for more spending, more domestic spying, more intervention overseas, and more control over people’s personal lives. Big-government conservatism is back with a vengeance.” 

Michael D. Tanner, Senior Fellow 

“A number of governors touted that they had balanced their state budgets. That’s no big deal because, unlike the federal government, every state is required to balance its budget every year. Fox News gave short-shrift to economic growth issues and cutting the federal budget, which are crucial issues for voters and for the future of the nation.”

Chris Edwards, Director of Tax Policy Studies at Cato and Editor of DownsizingGovernment.org

“The federal government will spend almost $4 trillion this year, and more next year. Overall, the candidates failed to detail plans on how to overhaul the federal  budget and limit its growth. Eighty-five percent of federal spending growth over the next decade is due to Social Security, our major medical programs, and interest on the national debt. Refusing to propose reforms ignores this reality.” 

Nicole Kaeding, Budget Analyst 

Rules versus Discretion: Insights from Behavioral Economics

For half a century now, the “rules versus discretion” debate in monetary economics has focused on the so-called “time inconsistency” problem.  The problem is that, although a discretionary central bank might promise not to allow the inflation rate to rise above zero (or some other ideal value), the fact that an inflation “surprise” can boost employment and output in the short run will tempt it to break its promise.  Realizing this, market participants will anticipate higher inflation.  The long-run result is a higher inflation rate with no improvement in either employment or output.  By limiting the central bankers’ options, a monetary rule solves the time inconsistency problem.

An earlier rules-versus-discretion debate had taken place in the 1920s and 1930s.1  The later one, which was inspired by the stagflation of the 1970s, differed in that it was influenced by the New Classical revolution that was taking place around the same time.  Consequently, the later critics of monetary discretion, including Finn Kydland and Edward Prescott,  Guillermo Calvo, Benn McCallum, Robert Barro and David Gordon, and John Taylor,2 differed from their predecessors by building their arguments on the premise that central bankers were both well (if not quite perfectly) informed and well intentioned.  Discretion, according to them, leads to less than ideal outcomes not because central bankers are ignorant or misguided, but because of misaligned incentives.

Republican Candidates’ Spending Increases

The Republicans took the stage in their first presidential debate Thursday night. Of the 16 major candidates, eight have gubernatorial experience. I have written a number of times recently about the fiscal records of the candidates with gubernatorial experience. Their records are instructive. A governor who promises to cut federal spending is more believable if he held spending in check when he was governor.

As my blog post earlier in the week detailed, there are a number of ways to measure how and why state spending changes. Gubernatorial policies play a large role in influencing state general fund spending. Other factors, such as the state’s budget process, legislative policies, and federal mandates, can contribute to changes in spending, but as a state’s Chief Executive, governors have impact.

Using data from the National Association of State Budget Officers, I wanted to see just how much each governor increased spending on an annual basis. Analyzing the data on an annual basis allows us to control for the length of governor tenure. George Pataki was governor of New York for twelve years, while Scott Walker has been governor of Wisconsin for only four years. Comparing Pataki’s increase of 39 percent to Walker’s increase of 16 percent is unfair to Pataki.