Archives: 04/2013

Deficits and Inflation, from the Fed to the Cartoon Page

You know you’ve arrived when your name starts showing up in cartoons. Here’s the Wall Street Journal’s legendary “Pepper … and Salt” cartoon from last Thursday:

Of course, most inflation obsessives are deficit scolds, so it’s not clear that host is going to get much debate. 

One person who might be called both an inflation obsessive – that is, a person who objects to the robbery of savers through the erosion of the value of their money – and a deficit scold is David Stockman, former budget director for President Ronald Reagan. He has a new book out, The Great Deformation: The Corruption of Capitalism in Americawhich he summarized in the New York Times on Sunday. He’ll be speaking about his book at the Cato Institute on Wednesday. Don’t miss it.

Can We Have An Evidence-Based Debate about the Future of the IMF?

On Saturday, March 30, the New York Times ran a curious editorial about the International Monetary Fund (IMF). The piece makes the case for a quick ratification of IMF’s quota reform by the United States, which it pictures as being in America’s interest. Unfortunately, the article is somewhat casual when it comes to the evidence it presents in support of its argument.

Firstly, the authors claim that the IMF

“has helped stabilize the global economy, most recently by providing loans to troubled European countries like Greece and Ireland.”

It is far from obvious that the repeated bailouts to Greece, in which the IMF has participated, have done much to calm the financial markets or to help the country’s economy. Recall that Greece is still going through a recession deeper than the Great Depression, with youth unemployment at around 60 percent, and no signs of recovery.

Secondly, there is the following assertion:

“[T]he fund’s capital […] has fallen sharply as a percentage of the global economy in the last decade.”

That is misleading as it does not take into consideration the increased use of the ‘new arrangements to borrow,’ (NAB) through which the Fund’s lending capacity was tripled in 2009, from $250 billion to $750 billion. That represented a historically unprecedented hike in the amount of resources available to any international organization.

Thirdly, the statement that the increase in quotas will happen “without increasing America’s financial commitment to the organization” is disingenuous. While the increase in quotas is to be accompanied by a reduction in the use of NAB’s – making it appear fiscally neutral on surface – the deployment of the NAB’s is accompanied by a stringent approval procedure, whereas the quotas can be deployed towards various lending purposes at the Fund’s discretion. Greater reliance on quota funding would thus enable the Fund to make bigger claims on the public purse, with less accountability.

A debate about the future of the IMF is long overdue in this country. But it should be a debate based on a careful examination of the Fund’s track record in mitigating financial crises around the world. To flatly assert, like the editorial does, that “[i]ncreasing the fund’s resources will ensure that it can respond quickly to another wave of turmoil in Europe or elsewhere” does not do the job. If anything, that claim - like much of the editorial - only strains credulity.

Water Shoot-Out at the OK Corral

Tombstone, Arizona is sitting on a tinderbox waiting to ignite because the federal government is blocking plans to restore the town’s critical water infrastructure. Water lines have long connected this desert town with springheads and reservoirs located on federally owned land, but a 2011 forest fire, followed by monsoon rains, led to massive mudslides and rock falls that shut off the city’s source of water.

Arizona declared a state of emergency and jump-started municipal efforts to regain access to the community’s lifeblood. Despite this precarious situation, the U.S. Forest Service has stonewalled the city, preventing workers from using mechanized equipment to reconstruct the water system.

The lower federal courts having denied it relief, Tombstone (represented by the Goldwater Institute) is now seeking Supreme Court review. Cato has joined a coalition of Western-state public policy foundations — the Rio Grande Foundation, Montana Policy Institute, Idaho Freedom Foundation, and Grassroot Institute of Hawaii — to file an amicus brief that urges the Court to consider the serious questions raised when the federal government uses its vast land holdings to prevent states or their political subdivisions from exercising essential functions reserved to them under the Tenth Amendment.

While the Property Clause grants Congress the power to make rules and regulations for federally owned land, this authority, like every enumerated federal power, is limited by our fundamental principles of federalism. In the 1987 case of California Coastal Community v. Granite Rock Company, the Supreme Court allowed a state to regulate private uses of federal land to further environmental goals. If anything, Tombstone’s interests here are even stronger: restoring its municipal water supply, responding to emergencies, and protecting the life, safety, and property of its residents.

Indeed, state sovereignty means very little if a federal agency can place a municipality’s existence under such great jeopardy. The Court should grant review because Tombstone’s ability to access federal land to repair its water infrastructure is a traditional government function reserved to the states and should not be trumped by federal authority under the Property Clause.

The United States will now have an opportunity to respond to Tombstone’s petition, and then, either in late June or late September, the Supreme Court will decide whether to take the case.