The Role of China in the U.S. Debt Crisis

March/​April 2013 • Policy Report

In the latest issue of the Cato Journal, Catoscholar James A. Dorn examines theimpact of China’s tightly controlled capitalmarkets on the United States. “Whileone cannot blame China for the U.S. debt crisis,which is due to profligate governmentspending, one can point to an unintendedconsequence of China’s policy of financialrepression — expanding the size and scope ofthe U.S. government.” Dorn goes on to lay outthe reforms that need to occur in both countriesto achieve lasting peace and prosperity.

Thomas Grennes looks at the diminishingquality of fiscal institutions in the UnitedStates and Europe. While the UnitedStates has deviated from a fiscal policy thathad been successful over a long period, thecurrent European fiscal problem is related toviolating more recent rules that followed theadoption of the euro in 1999. “Not all governmentborrowing is harmful,” Grennescontinues, “but there is increasing evidencethat excessive government debt can decreasethe rate of economic growth.“Melissa Yeoh and Dean Stansel offer thefirst examination of the relationshipbetween public expenditures and labor productivitythat focuses on municipalitiesrather than states or nations. By examiningthe Edgewood Voucher Program in SanAntonio, Texas, John D. Merrifield andNathan L. Gray find that privately fundedtuition vouchers have an immediate impacton economic development, including businessformation, the property tax base, andhousing growth and values.

Other contributors include George Selginon “Incredible Commitments: Why theEMU Is Destroying Both Europe and Itself,“Paul Ballonoff on “Providing Access to Electricityfor the Unserved: A Free‐​Market Solution,“and R. W. Hafer on “Economic Freedomand Financial Development: InternationalEvidence.”

The Winter 2013 issue concludes withreviews of books on President Obama andthe war on terror, the complexity of knowledgeused in coordinating human actions,and the case for polarized politics.

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