TARP and Its Cronies

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What role does political influence play in American banks’ lending? Previous studies have suggested that firms in other countries are exchanging investments for political perks, but these studies have relied on examining government‐​controlled banks in countries with weak institutions. What about the United States, with its relatively strong institutions and regulatory systems? In “Political Borders and Bank Lending in Post‐​Crisis America” (Research Briefs in Economic Policy no. 67), Matthieu Chavaz of the Bank of England and Andrew K. Rose of the University of California – Berkeley demonstrate that recipients of TARP increased their lending 23 – 60 percent more in areas inside their representative’s district, especially if their representative had voted for TARP, was reelected, and received substantial political contributions from the financial industry.

A frequent critique of liberal immigration policies is that large influxes of immigrants will destroy the country’s institutions, changing the political, religious, and cultural makeup of the country. In “Does Mass Immigration Destroy Institutions? 1990s Israel as a Natural Experiment” (Working Paper no. 41) Benjamin Powell of Texas Tech University, J. R. Clark of the University of Tennessee Chattanooga, and Alex Nowrasteh of the Cato Institute examine 1990s Israel as a unique natural experiment — the relaxation of emigration restrictions in the Soviet Union and its subsequent collapse led to an enormous wave of immigration to Israel, since Israel allows unrestricted immigration for Jews worldwide. Israel’s population increased by 20 percent in the 1990s due to this influx. And yet, the authors find that these immigrants did not erode the quality of Israel’s institutions, but rather that its economic institutions improved substantially, seemingly as a direct result of the mass migration.

The “resource curse” is a phrase coined to explain the paradox of resource‐​rich countries, such as oil‐​rich Venezuela or mineralrich African countries, which remain impoverished. But in “Curse or Blessing? How Institutions Determine Success in Resource‐​Rich Economies” (Policy Analysis no. 808) Peter Kaznacheev of the Russian Academy of National Economy and Public Administration explains that this “curse” can easily be avoided when a country puts strong institutions in place to foster entrepreneurship and industry, including secure property rights, a favorable tax regime, and minimal red tape. “Institutional deficiency in resource economies perpetuates rent‐​seeking, autocracy, and slower economic growth,” he writes. Without these deficiencies, countries like the United States, Australia, Canada, Chile, and Norway prove that the right institutions make natural resources a blessing, not a curse.

In America, the difference in attitudes toward police between races and political parties is significant — 68 percent of white Americans have a favorable view of the police, compared to 40 percent of African Americans and 59 percent of Hispanics. Eighty‐​one percent of Republicans view police favorably, compared to 59 percent of Democrats. In “Policing in America: Understanding Public Attitudes toward the Police. Results from a National Survey” (Working Paper no. 40), Cato research fellow Emily Ekins delves into the particulars behind these statistics and what informs them. She also finds that, despite these stark divides, most Americans oppose the same police practices, including civil asset forfeiture and police using military equipment. Most also agree that even if a person is suspected of breaking the law, police should obtain a court order before searching their homes or monitoring suspected criminals’ phone calls.

“Ban the box” laws, which ban potential employers from asking questions about criminal records, have been passed in many cities and states in recent years. Economists have predicted that this well‐​meaning policy could have devastating effects on racial minorities: when employers are not allowed to ask for this information, they may make assumptions that racial minorities are more likely to have criminal records, and choose not to interview them. In “Ban the Box, Criminal Records, and Statistical Discrimination” (Research Briefs in Economic Policy no. 65), Amanda Agan of Rutgers University and Sonja Starr of the University of Michigan test this theory by submitting nearly 15,000 applications on behalf of fictitious applicants before and after ban‐​the‐​box laws went into effect in New Jersey and New York City. They find that implementing the ban‐​the‐​box law substantially increases racial discrimination in employer callbacks. Black applicants withoutcriminal records were the most negatively affected.

There is widespread political support for deposit insurance, with the International Monetary Fund, the European Union, and the World Bank all endorsing it. Yet there is a large empirical literature suggesting that its costs outweigh the benefits, and that it has contributed to banking crises around the world. Previous studies, however, have been based on cross‐​country comparisons or comparisons across time within countries, leaving them unable to control for many factors. In “Stealing Deposits: Deposit Insurance, Risk‐​Taking, and the Removal of Market Discipline in Early‐​20th‐​Century Banks” (Research Briefs in Economic Policy no. 66), Charles W. Calomiris of Columbia University and Matthew S. Jaremski of Colgate University examine the effect that deposit insurance laws had on a handful of U.S. states before the creation of the Federal Deposit Insurance Corporation (FDIC) in the early 20th century, and are thus able to study insured and uninsured depository institutions operating at the same time and place, and under the same legal system. Their findings not only corroborate the prior literature but also show that deposit insurance created systemic risk by removing market discipline.

As drones increasingly become a part of modern police work, how can lawmakers ensure that they do not violate the privacy of American citizens? In “Surveillance Takes Wing: Privacy in the Age of Police Drones”(Policy Analysis no. 807), Cato policy analyst Matthew Feeney details how both state and federal lawmakers can implement policies that allow police to take advantage of drones while protecting privacy. “These policies should not only address familiar issues associated with searches, such as warrant requirements and video recording, but also relatively new concerns involving weaponization, biometric software, and surveillance technology,” he writes.