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

In the latest issue of the Cato Journal, Cato scholar James A. Dorn examines the impact of China’s tightly controlled capital markets on the United States. “While one cannot blame China for the U.S. debt crisis, which is due to profligate government spending, one can point to an unintended consequence of China’s policy of financial repression — expanding the size and scope of the U.S. government.” Dorn goes on to lay out the reforms that need to occur in both countries to achieve lasting peace and prosperity.

Thomas Grennes looks at the diminishing quality of fiscal institutions in the United States and Europe. While the United States has deviated from a fiscal policy that had been successful over a long period, the current European fiscal problem is related to violating more recent rules that followed the adoption of the euro in 1999. “Not all government borrowing is harmful,” Grennes continues, “but there is increasing evidence that excessive government debt can decrease the rate of economic growth.” Melissa Yeoh and Dean Stansel offer the first examination of the relationship between public expenditures and labor productivity that focuses on municipalities rather than states or nations. By examining the Edgewood Voucher Program in San Antonio, Texas, John D. Merrifield and Nathan L. Gray find that privately funded tuition vouchers have an immediate impact on economic development, including business formation, the property tax base, and housing growth and values.

Other contributors include George Selgin on “Incredible Commitments: Why the EMU Is Destroying Both Europe and Itself,” Paul Ballonoff on “Providing Access to Electricity for the Unserved: A Free-Market Solution,” and R. W. Hafer on “Economic Freedom and Financial Development: International Evidence.”

The Winter 2013 issue concludes with reviews of books on President Obama and the war on terror, the complexity of knowledge used in coordinating human actions, and the case for polarized politics.