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Recent Policy Studies
The Constitution/Civil LibertiesBy Richard A. Epstein, Hoover InstitutionDefining Ideas, 04/09/2014
This past week, in McCutcheon v. Federal Election Commission, the Supreme Court struck down yet another portion of the Bipartisan Campaign Reform Act of 2002 (BCRA). The Court ruled that the aggregate limit for contributions by any one individual to all candidates and non-candidate committees in any two-year election cycle was not reasonably tailored to prevent the risk of corruption in political elections. Justice Stephen Breyer argued in dissent for the law’s necessity to prevent rich people from drowning out the voices of ordinary people in political elections. Justice Breyer ignores the point that in dealing with regulations on political speech, the burden remains on the government to demonstrate he necessity of specific regulations to deal with demonstrated abuses. It turns the First Amendment upside down to impose any restrictive regulations before demonstrating a breakdown in political processes.
Transportation/InfrastructureBy Kenneth Button, Cato InstituteRegulation, 04/09/2014
Since most economic controls over domestic commercial aviation ended in the late 1970s, traffic has grown by orders of magnitude, inflation-adjusted fares have fallen, computerization has revolutionized ticket-buying, frequent flier points have become a second currency, the range of routes available has expanded out of all recognition, and low cost carriers have come, and just as often gone. Flying is no longer an experience; it has become a transportation product. However, the 1978 Airline Deregulation Act only partially liberalized the U.S. domestic airline market. One important restriction that remains is the lack of domestic competition from foreign carriers. Much is often made in the media of short-term frictions in the market, but more important is the thinning of capacity for some smaller local markets. A solution to both issues is to allow market forces to work even more efficiently, including by opening the domestic airline industry to foreign competitors.
Bringing Transportation Decisions Closer to the People: Why States and Localities Should Have More ControlBy Matthew Grinney, Emily Goff, The Heritage FoundationBackgrounder, 04/09/2014
America’s surface transportation system is in need of reform. In a country as large and diverse as the United States, it is state and local officials—not remote federal authorities—who have the knowledge required to address their own communities’ transportation concerns. Yet, burdensome federal regulations and restrictions on Highway Trust Fund spending hinder states’ ability to carry out cost-effective highway, road, and bridge improvement projects. Some Members of Congress even want to increase the centralization of transportation regulation, based on a misunderstanding of the division of powers in the Constitution. The Constitution creates a federal government to deal with national issues while reserving to the state and local governments authority over all other public affairs. As Congress considers the 2014 reauthorization of the current highway bill, it should take concrete steps to give state and local governments control and flexibility to build their own transportation projects.
Crime, Justice & the LawBy Richard A. Booth, Cato InstituteRegulation, 04/09/2014
Early last year, the U.S. Supreme Court missed another opportunity to make sense out of securities litigation. In Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, buyers of the biotech stock sued, claiming the company had misrepresented concerns about two flagship drugs. Amgen argued that the market was aware of the facts and that it should not be subject to a class-action lawsuit unless the alleged misrepresentations affected its shares’ market price, which should be determined prior to certification to proceed to class-action. Securities fraud class actions depend on the idea that an investor may be presumed to have relied on a material misrepresentation even if he was unaware of it because the misrepresentation would have affected market price. This fraud-on-the market (FOTM) presumption makes class actions possible. The Supreme Court’s decision against Amgen means defendant corporations will be induced to settle many cases that would never succeed at trial.
Regulation & DeregulationBy Dwight R. Lee, Cato InstituteRegulation, 04/09/2014
Economists have long criticized anti-price-gauging laws by arguing that market prices are the most effective means for people to communicate their need for help after a major disaster. Yet, this criticism is unpopular and ineffective. For most people, price gouging is primarily a moral issue, not an economic one. For most people, morality is more about intending to achieve desirable outcomes than actually achieving them. Anti-price-gouging laws seem to many an effective deterrent to those who would seek to profit from others’ misfortune. Economists’ best hope for making an effective case against anti-price-gouging laws requires considering two moralities—one intention-based, the other outcome-based—that work together to improve human behavior when each is applied within its proper sphere of human activity. Unfortunately, the intention-based morality creates strong support for anti-price-gouging laws that render both moralities less effective at motivating help for disaster victims.
Economic GrowthBy Ike Brannon, Cato InstituteRegulation, 04/09/2014
If income inequality in the United States is growing, how much should we do to reverse it? The answer to that question requires answering two further questions: how much would dampening inequality also dampen economic growth, and how important is a more egalitarian society compared to a wealthier one? Modeling the economy as having a stable, measurable tradeoff between inequality and economic growth ignores the forces that have hastened inequality. Perhaps the best way to understand these forces and what our economic response should be is to focus on how those same forces affected one particular market: professional basketball. The National Basketball Association’s explosion in popularity has created a few spectacularly rich people, but the typical NBA player is far from wealthy and most of the wealth created has gone to people who don’t play the game. Taxing the resulting inequality away is easier said than done.
Economic GrowthBy James M. Roberts, Edwar Enrique Escalante, The Heritage FoundationIssue Brief, 04/09/2014
When Peruvian president Ollanta Humala took office three years ago, some feared the worst. During his first presidential run in 2006, Humala had donned the mantle of the populist, “Bolivarian” left. So although Humala lost the 2006 election and then moved to the center and won as a more moderate-sounding candidate when he ran again in 2011, no one knew for sure how he would govern. Now the world knows that Humala has stayed the course for economic freedom, keeping policies in place that have allowed Peru to realize significant gains in trade freedom. Nevertheless, Peru’s political and economic institutions remain chronically underdeveloped. Humala’s concern for poverty alleviation is well known, but the best way to help the poorest in Peru is to expand economic freedom. That cannot be done without strong institutions to protect property rights and enforce contracts.
Monetary Policy/Financial RegulationBy Charles W. Calomiris, Stephen H. Haber, Cato InstituteRegulation, 04/09/2014
After two years of collapse and three years of stagnation, home prices finally rallied in 2013. In order to prevent banks from issuing a new round of mortgages that borrowers cannot afford, the Consumer Financial Protection Bureau recently issued rules governing “Qualifying Mortgages” (QM). To prevent banks from using depositors’ savings to make risky investments in securities and their derivatives, the Volcker Rule, a provision of the 2010 Dodd-Frank Act, was finally implemented last December. Many of the other regulatory reforms of Dodd-Frank have been in place since 2010, including the designation of the country’s largest banks as Systemically Important Financial Institutions (SIFIs). The sad truth is that these reforms are either irrelevant or have been lobbied to the point of irrelevancy. The main source of potential trouble has not been addressed. Until average Americans punish political leaders for acquiescing to the subsidization of mortgage risk, effective reform will remain elusive.
Economic and Political ThoughtBy Robert H. Nelson, Cato InstituteRegulation, 04/09/2014
Religion traditionally has had little role in American professional economics, other than as a possible factor in shaping consumer preferences. In the past few years, however, several articles in top economics journals have argued that religion historically has had a significant influence on the levels of economic growth and development of nations. Different religions lead to different political preferences, and those political differences lead to economic differences. The lack of a greater understanding of religious considerations leaves economists exposed to being blindsided. The policy disagreements between economists and environmentalists, for example, are typically not primarily about technical matters but about the clashing core values of economic religion and environmental religion. Bringing religion into economic policy analysis would be no small change, but policy economists could start by developing a greater knowledge of religion and by examining religious factors in seeking to understand the workings of political and economic systems.
Natural Resources, Energy, Environment, & ScienceBy Jonathan H. Adler, Nathaniel Stewart, Cato InstituteRegulation, 04/09/2014
The New England Fishery Management council voted in January 2013 to recommend drastic new cuts to the catch limits for Atlantic codfish off the New England coast. New England fisherman and other opponents fear that the restrictions will doom the centuries-old local fishing industry. Plan proponents, however, counter that the measures are the only way to save the rapidly collapsing Atlantic cod industry. Strengthening property rights in quotas, enhancing tenure contracts to induce long-term stewardship, and improving the working relationships between fishers and managers are important components of fishery management. Lawmakers and resource managers should acknowledge the growing body of empirical research demonstrating the impact of stronger, longer-tenure property rights and rights-based incentives on improving fishery performance. Although catch shares have their drawbacks, the world has less to fear from the expansion of property rights in marine resources than from the failure to utilize property rights for marine conservation.
Budget & TaxationBy Curtis S. Dubay, The Heritage FoundationIssue Brief, 04/09/2014
April 15, the day Americans’ tax returns for the previous year are due to the IRS, is fast approaching. At least, Tax Day provides a yearly reminder of just how convoluted the tax code is, how much damage it does to the economy, and how different filing taxes could be. House Ways and Means Committee Chairman Dave Camp (R-MI) released a thorough and detailed proposal for tax reform recently that will keep debate alive, but he is encountering resistance to advancing the cause beyond what either President Obama or the Senate is prepared to do. Camp and the House will have to keep making the case to the American people that we need tax reform while making clear to them the ample benefits they will experience if it becomes a reality. Heightened visibility of the issue will increase the chances for passing tax reform sooner.
The Constitution/Civil LibertiesBy Roger Clegg, Hans von Spakovsky, Elizabeth Slattery, The Heritage FoundationLegal Memorandum, 04/09/2014
Discrimination on the basis of race and ethnicity is unconstitutional, unlawful, and morally repugnant. The government should not sort people according to such innate characteristics, yet such criteria often factor into government programs and protections. Jobs should go to the most qualified individuals; contracts should be awarded to the lowest qualified bidders; the students who are most likely to excel academically should be admitted to taxpayer-funded universities; and all should be protected equally from discrimination. A number of states have enacted laws banning all forms of discrimination. Congress should eliminate racial discrimination in federal contracting and employment and federally funded programs, including educational institutions; require disclosure of preferential university admission policies; and limit and clarify when claims of “disparate impact” may be brought.
Economic GrowthBy Roger F. Noriega, Felipe Trigos, American Enterprise InstituteLatin American Outlook, 04/07/2014
During the last three decades, most of Latin America has benefited from important gains in the consolidation of democratic institutions and implementation of orthodox economic policies that have tamed hyperinflation, reined in debt, and liberalized trade. Of course, Venezuela, Cuba, and other countries are dramatic exceptions to this regional progress. However, even the region’s bellwether economies, Brazil and Mexico, which are routinely hailed for their growth spurts and unquestionable potential, have suffered from recurring bouts of populist policies. Key Latin American governments, such as Brazil and Mexico, must adopt economic, fiscal, and energy policies that will maximize job creation, sustainable growth, and energy self-sufficiency. Because the performance of Latin American economies has a disproportionate effect on US prosperity, the American economy will benefit if US policy encourages economic partnerships with Latin America that cultivate a healthy private sector, energy interdependence, and greater competitiveness in a global market.
Information TechnologyBy Richard Bennett, American Enterprise InstituteTech Policy Outlook, 04/07/2014
American citizens are far ahead of government agencies and holdout populations such as the elderly in transitioning to new networking technologies. Some 45 years after design work started on the cellular network and the Internet, the Federal Communications Commission (FCC) issued an Internet Protocol (IP) Technology Transitions Order amounting to a reluctant invitation for trials on the decommissioning of the legacy telephone network. The FCC is clearly anxious about turning the telephone network off, probably because the FCC and telephone network grew up together. Although society will benefit most from a rapid transition from telephone to broadband networks, the FCC’s order is obstructing the transition. The FCC’s order should be substantially revised to, among other things, accelerate the adoption of IP technologies in the realms of public safety, defense, and aviation.
Monetary Policy/Financial RegulationBy John H. Makin, American Enterprise InstituteEconomic Outlook, 04/07/2014
Inflation is falling in the United States, Europe, and China, suggesting a real threat of impending deflation that could cripple the global economy. Deflation is especially dangerous because it is self-reinforcing; once it takes hold, economic conditions will get much worse before they get better. Central banks in the United States and around the world must end their complacency and respond preemptively to the threat by monitoring inflation rates and undertaking aggressive monetization.
Budget & TaxationBy Eric Toder, Alan D. Viard, American Enterprise InstituteReport, 04/07/2014
It is widely recognized that the current U.S. corporate income tax is flawed, particularly in its treatment of foreign-source income. Unfortunately, current reform proposals fail to resolve the fundamental contradictions in the current corporate income tax structure. The current system and the reform proposals attempt to base corporate taxation on the source of the corporate income, the residence of the corporation, or a combination of those two factors. However, neither source nor corporate residence can be easily defined. Any viable reform must either find an agreed-upon way to define those terms or must restructure the tax system in a way that avoids the need to define them. One option would seek international agreement on how to allocate income of multinational corporations among countries. The other option would eliminate the corporate income tax, but would tax American shareholders at ordinary income tax rates on their dividends and accrued capital gains.
Economic GrowthBy Kevin A. Hassett, Michael R. Strain, American Enterprise InstitutePaper, 04/07/2014
The Great Recession was especially deep and especially long. The sustained departure of output from its trend path was accompanied by a large drop in employment, which stayed low relative to trend for an extended period as well. As this occurred, the percentage of workers who were long-term unemployed increased sharply. In light of this, policymakers and economists must ask whether smart policy could have mitigated large employment losses and the high incidence of long-term unemployment. We believe that the answer is yes and that work-sharing is such a policy. Under work-sharing, a firm can reduce the hours of its workforce in lieu of a layoff, and workers whose hours have been reduced are eligible for a prorated unemployment insurance (UI) benefit. In this way, a firm can weather a temporary lull in demand by reducing its payroll costs without laying off large number of workers.
Monetary Policy/Financial RegulationBy Gary S. Matsko, Washington Legal FoundationLegal Backgrounder, 04/07/2014
Judicial criticism of Securities and Exchange Commission (SEC) settlement practices involving Wall Street have fueled a fierce debate over those practices. To date, the controversy has centered on permitting defendants in SEC proceedings to settle claims “without admitting or denying” the SEC’s allegations. Yet, any re-assessment of SEC settlement practices must consider the post-judgment restraint on speech that the SEC imposes. The SEC requires all settling parties to agree that they will neither directly nor indirectly make any public statement that calls into question the accuracy of any allegation made in the SEC’s complaint. Thus, a settling party who had meritorious defenses, but could not afford to litigate, may not say so publicly. Moreover, the policy can allow government lawyers to operate “in the shadows” by preventing those with the greatest knowledge of the stated accusations or the process used to develop those accusations from criticizing either.
International Trade/FinanceBy John Roberti, Meytal McCoy, Washington Legal FoundationLegal Backgrounder, 04/07/2014
Mexico is considering a proposal that could transform the nation’s competition law regime (the “Law”). The Law has the potential to affect many US and other companies in two principal ways. First, the Law introduces the concept of “barriers to competition” that may result in a violation based only upon the existence of market dominance or concentration in a critical input. Second, the Law authorizes industry-wide investigations that may be coupled with significant regulatory intervention. The Law also may have an international effect. Governments and antitrust authorities around the world are seeking to harmonize their competition laws to allow companies to operate globally. The Law also creates potential new antitrust compliance risks for companies operating in Mexico. It could deter firms from engaging in vigorous competition and from making investments in new products and quality improvements, which would harm Mexican consumers.
Budget & TaxationBy Talmadge Heflin, Vance Ginn, Texas Public Policy FoundationPolicy Perspective, 04/07/2014
The Texas model of low taxes, less regulation, and a sound civil justice system has contributed to the state’s strong economic growth and national leadership in job creation. The strong growth of the Texas economy in turn has led to a rapid growth in tax revenue. If these revenues continue on their current pace, they will create a sizable budget surplus for the state in 2015. Yet, the Texas legislature hasn’t displayed much restraint recently when provided the opportunity to spend taxpayer money. The Sales Tax Relief (STaR) Fund should be the vehicle for returning excess revenue to Texas taxpayers. By restraining government spending, Texas’ economy will continue to be the envy of all states.
Budget & TaxationBy Kyle Pomerleau, Lyman Stone, Tax FoundationResearch, 04/07/2014
Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income. In 2014, Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2 percent of income. This year, Tax Freedom Day falls on April 21, or 111 days into the year. Tax Freedom Day is three days later than last year due mainly to the country’s continued slow economic recovery, which is expected to boost tax revenue especially from the corporate, payroll, and individual income tax. If we include annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 6, 15 days later.
Budget & TaxationBy Liz Malm, Gerald Prante, Tax FoundationResearch, 04/07/2014
During the 2011 fiscal year, state-local tax burdens as a share of state incomes decreased on average. This trend was largely driven by the growth of income in all states. In 2011, the residents of New York, New Jersey, and Connecticut had the highest state-local tax burdens as a share of income. In these states, residents have forgone over 11.9 percent of income due to state and local taxes. Residents of Wyoming paid the lowest percentage of income in 2011 at just 6.9 percent. They replaced Alaska, which had previously been the least-taxed for multiple decades. After Wyoming and Alaska, the next lowest-taxed states were South Dakota, Texas, and Louisiana. The twenty mid-ranked states differ in burden by just over one percentage point. Taxes paid within states of residence decreased on average in 2011 while taxes paid to other states increased.
National SecurityBy Dakota Wood, Brian Slattery, The Heritage FoundationIssue Brief, 04/07/2014
The Army’s decision to transfer AH-64 Apache helicopters from the National Guard to the active force has sparked a debate that concerns the roles, missions, and contributions of these ground components. The past decade of conventional combat operations in Iraq and Afghanistan, which relied heavily on National Guard units, has led to a renewed recognition of the contributions made by Guard (and Army reserve) units to the security interests of the nation. It has also fostered a conviction that Guard units are primarily conventional combat units that should mirror active Army units in mission, equipment, and employment. Congress should support the Army’s efforts to rebalance its assets in a way that benefits both active and Guard components. It should resist attempts to slow the plan from being executed as quickly as possible and strive to fund the requirements of the Army and other services more robustly.
The Constitution/Civil LibertiesBy Brian Doherty, Reason FoundationReason, 04/07/2014
The Supreme Court ruled in the 2008 case D.C. v. Heller that the Second Amendment protects an individual right to possess weapons—or at least commonly used weapons—in the home. In 2010’s McDonald v. Chicago,, the Court found that states and localities were also barred from violating that right. But those landmark rulings left unsettled a host of important questions about how, when, and why the government can regulate or restrict gun rights. The Court has recently plucked a handful of Second Amendment cases from the submissions pile, asking for responses from the relevant parties. This suggests a potential interest in clarifying Heller and McDonald. Here are five important cases that could expand Second Amendment liberty and clarify some of the core issues left unresolved. Two of them have filed certiorari petitions with the Supreme Court, though whether they’ll be taken up remains to be seen.
Economic GrowthBy Ronald Bailey, Reason FoundationReason, 04/07/2014
President Barack Obama has declared that “a dangerous and growing inequality and lack of upward mobility” is “the defining challenge of our time.” Yet, Brookings Institution economist Gary Burtless has shown that from 1979 to 2010, the bottom fifth’s after-tax income in constant dollars rose by 49 percent. The incomes of households in the second lowest, middle, and fourth quintiles increased substantially as well. The poor and the middle class got richer. The numbers also show that the rich got richer too, and they got richer faster. Because of these differential increases in income, the share of pre-tax national income going to the top quintile has increased. So inequality has increased. But if most Americans’ incomes are rising, does it matter if some are getting a larger share? The real defining economic challenge of our time isn’t inequality. It’s persistent joblessness and weak economic growth perpetuated by feckless economic policies.
Budget & TaxationBy Veronique de Rugy, Reason FoundationReason, 04/07/2014
While commentators remain captivated by the bleak saga of such Eurozone basket cases as Greece, Portugal, Spain, and Italy, another European Union member is quietly slipping into economic despair—France. France spends more of its GDP on government-57 percent-than any other country in the Eurozone. The country’s unemployment rate is at a 16-year high of 11 percent, and a startling number of richer and younger French people are leaving for more hospitable economic environments abroad. The Wall Street Journal and the Heritage Foundation’s Index of Economic Freedom for 2013 ranks France 62nd in the world, between Thailand and Rwanda. Unfortunately, the French government’s response has been to tack toward less economic freedom, not more. To secure robust prosperity for new French generations, leaders should attack government spending and rein in destructive tax rates.
WelfareBy Daren Bakst, Rachel Sheffield, The Heritage FoundationIssue Brief, 04/07/2014
In February, Congress passed a new farm bill that lacked meaningful and necessary reform. Making matters worse, Congress made critical mistakes that will have a major impact on both food stamps and farm programs. The most significant attempt at food stamp reform was to close the “heat and eat” loophole, which allows states to artificially boost the amount of food stamps that households receive. It is becoming clear, however, that the loophole has not been closed, and the price projections were outdated even at the time of passage. In addition, two major new commodity programs were created in the farm bill. By not using updated commodity price data, Congress failed to assess accurately the financial impact of these costly new programs. However, there are simple and straightforward ways to fix these mistakes that do not require major substantive policy changes.
Budget & TaxationBy Anthony Randazzo, Reason FoundationAnalysis, 04/07/2014
The Ventura County Employees’ Retirement Association (VCERA) is poorly positioned to stay properly funded in the coming years, and local taxpayers may be forced to pick up a hefty tab of unfunded liabilities if substantive changes are not made in the near future. If adopted, the Initiative for Pension Fairness and Sustainability would save Ventura County $5.4 million in cash flow over the first two years, $51.6 million in cumulative savings over five years of reform, and $460 million in total savings over 15 years—all while separately eliminating $1.8 billion in pension debt. In the long run, moving to a new defined-contribution system would protect taxpayers from unfunded liabilities and investment return risks in public retirement systems.
Transportation/InfrastructureBy Robert Poole, Reason FoundationPolicy Brief, 04/07/2014
Over the next two decades, nearly all of the Interstate highway system’s 47,000 miles will have to be rebuilt, to make it serviceable for another 50+ years. The project will cost an estimated $1 trillion. That sum is far beyond current federal and state highway funding budgets. Congress some years ago created a pilot program to let states attempt to reconstruct three aging Interstates using toll finance. Yet, highway user groups have been leery of Interstate tolling. Reason Foundation’s new policy brief, “Value-Added Tolling,” outlines a new way forward. It calls for tolling advocates to take highway users’ concerns seriously in crafting a set of safeguards that would make next-generation tolling a true highway user fee, not a cash-cow to solve a state’s overall transportation needs. Congress could start by expanding or mainstreaming the current pilot program to all 50 states conditional on the incorporation of Value-Added Tolling principles.
Budget & TaxationBy Pamela Villarreal, National Center for Policy AnalysisIssue Brief, 04/07/2014
Last year, the U.S. Senate passed the Marketplace Fairness Act (MFA), allowing states to require online retailers to collect and remit sales taxes for each buyer’s state. Though the House is unlikely to pass the bill anytime soon, the issue will likely resurface. Under the MFA, online retailers could collect an estimated $22 to $24 billion in currently uncollected sales taxes. The MFA responds to the 1992 Supreme Court decision that a business could not be forced to collect a state’s sales tax unless it had a physical presence (nexus) there. 45 states already have laws requiring purchasers of online or out-of-state products to pay a “use” tax if the seller does not charge them sales taxes, but states rarely enforce payment. The MFA would make sellers responsible for collecting any taxes due on sales, but states are unlikely to collect the additional billions of dollars in revenue they claim.
Health CareBy Marc Joffe, Mercatus CenterWorking Paper, 04/07/2014
The high and rising cost of US medical care is partially attributable to legally enforced rigidities in the health care system. By relaxing restrictions, the government can unlock competitive forces that drive prices down and empower individuals to avoid unnecessary, expensive medical services. A more open health care market would give providers incentives to innovate in ways that not only improve the quality of care but also reduce the cost of offering it.
Monetary Policy/Financial RegulationBy Hester Peirce, Robert Greene, Mercatus CenterWorking Paper, 04/07/2014
For decades, money market funds (MMFs) were thought to be safe, low-risk investments. The financial crisis of 2007-2009 prompted calls for MMF reform. Our paper offers a reform that builds on MMF boards of directors and their well-established responsibility for making key decisions for MMFs. After a brief overview of the regulatory history of MMFs, we describe boards’ responsibilities under current law, the problems MMFs encountered during the crisis, and market and government responses to these problems. Evidence shows that during the crisis, investors were discerning in deciding whether and when to run; more risky, less liquid funds experienced higher volumes of redemptions. This finding, along with our assessment of funds’ boards of directors’ responsibilities, helps to lay the groundwork for considering the various options for addressing problems still facing MMFs, including our proposal to allow boards to gate their funds when faced by potentially destabilizing redemption pressures.
Monetary Policy/Financial RegulationBy Jerry Brito, Mercatus CenterTestimony, 04/07/2014
Online virtual currencies are nothing new. They have existed for decades—from World of Warcraft Gold to Facebook Credits to e-gold. Neither are online payments systems new. PayPal, Visa, and Western Union Pay are all examples. So what is it about Bitcoin that makes it unique? Bitcoin is the world’s first completely decentralized digital currency. Its decentralized nature results in lower transactions costs, making it particularly attractive to small businesses. It could also be an attractive electronic payments option for consumers, including the unbanked and underbanked. Risks include volatility and security, but these are not problems inherent in Bitcoin’s design.
Family, Culture & CommunityBy Ryan T. Anderson, The Heritage FoundationBackgrounder, 04/04/2014
Whatever one’s views of marriage and however the state defines it, there is no compelling state interest in forcing all citizens to facilitate, participate in, or celebrate a same-sex relationship as a marriage. Believing that marriage is the union of man and woman is a reasonable position held by many. Bans on interracial marriage, by contrast, were grossly unreasonable. Protecting religious liberty and the rights of conscience does not restrict anyone’s freedom to enter into whatever romantic partnerships he or she wishes. Americans should remain free to speak and act in the public square based on their belief that marriage is the union of a man and woman without fear of government penalty. No one should demand that government coerce others into celebrating their relationships.
Foreign Policy/International AffairsBy Charlotte Florance, Brett D. Schaefer, The Heritage FoundationIssue Brief, 04/04/2014
The Obama Administration announced on March 23 that additional U.S. forces and assets will be deployed to reinforce the joint U.S. and African Union Regional Task Force (AU-RTF) tracking Ugandan warlord Joseph Kony and his Lord’s Resistance Army (LRA). There is no question that Kony and the LRA have committed terrible atrocities and that purging Africa of Kony and the LRA is a worthwhile endeavor. However, the President also has a duty to inform Congress and the American people about why these additional forces are required, their objective, their responsibilities, and how long he expects them to be deployed in the region.
Monetary Policy/Financial RegulationBy Norbert J. Michel, John L. Ligon, The Heritage FoundationIssue Brief, 04/03/2014
Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) have released a new housing finance reform bill, and as expected, it is very similar to the bill that Senators Bob Corker (R-TN) and Mark Warner (D-VA) released last June. Both Senate proposals would wind down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and both would replace the GSEs with a new government agency. This new agency, the Federal Mortgage Insurance Corporation (FMIC), receives an even bigger regulatory role in the Johnson-Crapo bill than it would have under the Corker-Warner plan. The Senate’s newest legislation even gives the FMIC the authority to waive the much-touted first-loss provision when approving new companies to operate in the mortgage market. The Senate bills would not help people to buy homes; they would only protect investors and special interests at taxpayers’ expense.
Budget & TaxationBy Scott Drenkard, Tax FoundationFiscal Facts, 04/03/2014
Tax policy in Ohio over the last several years has been a mixed bag. Although Governor Kasich’s 2014 tax proposal decreases individual income taxes, it pays for those tax decreases with hikes in taxes on tobacco, energy, and businesses. Policymakers should consider improving corporate taxes by repealing the Commercial Activities Tax, eliminating special credits for businesses, and bringing down the overall rate. They should consider improving individual income taxes by overhauling Ohio’s local income tax system, repealing last year’s pass-through business carve out, consolidating income tax brackets, and eliminating the marriage penalty. Governor Kasich’s goal of enacting income tax cuts with revenue offsets is possible, but relying on tax gimmicks to close the revenue gap is not sensible tax policy. The proposals presented here would start Ohio down a path to fundamental tax reform instead of tinkering at the edges.
Budget & TaxationBy Michael Schuyler, Tax FoundationSpecial Report, 04/03/2014
The Tax Foundation’s Taxes and Growth Model was used to estimate the long-run effects on the U.S. economy and federal revenue of enacting the capital cost recovery plan developed by Senate Finance Committee staff under the guidance of Senator Max Baucus. In general, the Baucus plan would slow the rate at which businesses could claim investment costs as expenses on their tax returns. Because of the time value of money, that would depress the present value of the write-offs and worsen the income tax’s bias against saving and investment. Consequently, new investments would be fewer than otherwise, the economy’s stock of capital would increase less rapidly, productivity would suffer, and economic growth would slow. Government revenue estimators would score the Baucus proposal as a big revenue raiser, which increases the odds that it will be seen as an option in current or future policy debates.
Economic GrowthBy Keith Hall, Mercatus CenterTestimony, 04/03/2014
Nearly five years after the end of the Great Recession, the labor market today is still far from full recovery. The problem of this inadequate job growth for everyone in America can be attributed to an unprecedented disengagement from the labor force since the end of the recession. Last year, labor force participation was at its lowest level in 35 years. Unless we stop this trend and begin to bring back the millions of Americans who are no longer in the labor force, we will have permanently lower economic growth, slower income growth, and rising income inequality. In order to assist American families to escape poverty, we must focus on policies that support employment by encouraging economic growth, lowering the cost of hiring for employers, and increasing incentives to re-enter the labor force.
Budget & TaxationBy Veronique de Rugy, Mercatus CenterAnalysis, 04/03/2014
The Export-Import Bank is one of the least defensible corporatist boondoggles that taxpayers are forced to subsidize. This US government-owned corporation styles itself as a self-sustaining independent executive agency that selflessly serves the public by “support[ing] jobs in the United States,” “facilitating the export of US goods and services,” “provid[ing] competitive export financing,” and “ensur[ing] a level playing field for US exports in the global marketplace.” In reality, the Ex-Im Bank is little more than a publicly subsidized piggy bank for large corporations, who retain private profits while transferring risk to taxpayers.
Monetary Policy/Financial RegulationBy Hester Peirce, Jerry Ellig, Mercatus CenterWorking Paper, 04/03/2014
The Securities and Exchange Commission (SEC), which oversees activities in US financial markets, is charged by Congress with formulating rules to protect investors and the general public by facilitating capital formation and fostering fair, orderly, and efficient markets. The role of economic analysis in shaping those rules is crucial in view of their impact on the US economy, as Congress recognized when it required the SEC to conduct economic analysis in making its determination whether new rules are in the public interest. This new study finds significant shortcomings in the SEC’s use of economic analysis in seven major final rules promulgated by the SEC before the issuance of its March 2012 staff economic analysis guidance and one major rule issued after the new guidance. As the SEC’s retooled regulatory analysis takes hold and the SEC applies it more, there is reason to be optimistic that SEC analysis will improve.
Monetary Policy/Financial RegulationBy George H. K. Wang, Mercatus CenterResearch, 04/03/2014
Some members of Congress have proposed a securities transaction tax (STT) as a way to raise revenue for financing the government budget deficit or for funding regulatory agencies, such as the US Commodity Futures Trading Commission and the US Securities and Exchange Commission. Proponents of an STT argue that it would increase government revenue and discourage short-term speculative trading, and hence, reduce price volatility. Opponents of an STT argue that it would increase the cost of capital and the cost of hedging and reduce market liquidity, but would not necessarily reduce price volatility. My review confirms that the costs of an STT outweigh the benefits. The potential tax revenue of an STT is often substantially overestimated by its proponents. Furthermore, some high-elasticity futures and stocks would likely be shifted to untaxed foreign markets, and the international competitiveness of the US equity and futures markets would be hurt.
Economic GrowthBy Joel Mokyr, Manhattan InstituteCity Journal, 04/03/2014
The statement “everything that could be invented has been invented” expresses a prevalent pessimism among economists, such as Northwestern University professor Robert J. Gordon. Gordon expects growth to slow to a small fraction of what it was in the past. Innovation, he maintains, will not be enough to offset aging populations, declining educational achievement, and rising inequality. Certainly, it is difficult to know exactly the direction and significance of technological change. Yet, the past tells us that such pessimism is mistaken. The future of technology is likely to be bright as it continues to develop and change human life and society at a rate that may well dwarf even the dazzling developments of the twentieth century. The fear that this progress will create problems that no one can envisage is realistic. Yet technological progress still beats the alternatives; we cannot do without it.
A Slacking Figure: Despite What President Obama and the Los Angeles Times Say, 3.1 Million Young Adults Have Not Received Coverage via Their Parents’ InsuranceBy David Hogberg, National Center for Public Policy ResearchArticle, 04/03/2014
The number of young people who can now stay on their parents’ insurance plans until age 26 is one of the most oft-repeated ObamaCare statistics. The Los Angeles Times recently used it to claim that because of ObamaCare, “at least 9.5 million previously uninsured people have gained coverage.” That included the 3.1 million young adults who are covered by their parents’ plans and about 2 million on the exchanges and 4.5 million on Medicaid. The exchange and Medicaid numbers are highly problematic and have been challenged elsewhere. Yet, the 3.1 million young adults figure seems nearly infallible. The 3.1 million figure, however, comes from a June 2012 report from the Department of Health and Human Services that used dubious methods. In addition, an estimate using Census Bureau numbers would come closer to 258,000 newly insured young people. 3.1 million is far too unreliable for major newspapers to repeat.
Natural Resources, Energy, Environment, & ScienceBy Julie Gunlock, Capital Research CenterGreen Watch, 04/03/2014
In a very real sense, genetically modified food has existed for millennia. Recent scientific advances in the field are decreasing starvation, helping the world’s poor, and lowering food costs at your neighborhood grocery store. Unable to counter these advances for mankind, environmental activists have taken to scaring mothers that such food will poison their children, in the hope that nervous moms will pressure government to suppress “frankenfood,” even in the absence of any scientific evidence that it is harmful.
Natural Resources, Energy, Environment, & ScienceBy Todd Graham, Jeremy Gingerich, PERC – The Property and Environment Research CenterCase Study, 04/03/2014
In what may be a huge opportunity for the Oglala Sioux, a Tribal National Park is emerging in South Dakota—the first of its kind. The South Unit lies within the Pine Ridge Reservation, home of the Oglala Sioux Tribe. This area, known as the South Unit, is adjacent to Badlands National Park and is held in trust and administered by the National Park Service (NPS). Formation of the park would allow the Oglala Sioux and the NPS to pursue jointly held values. The tribe seeks economic development opportunities, job creation, and a renewed emphasis on their heritage and recognition of the importance of buffalo. The Park Service wants another large buffalo herd in the Great Plains. The thought of a huge herd roaming these vast expanses is compelling, regardless of who wants to see it happen.
Elections, Transparency, & AccountabilityBy Livio Di Matteo, Fraser InstituteBook, 04/03/2014
As government spending has grown over the past 100 years, both in terms of spending per person and as a share of the economy, it has become clear that bigger government is not always better government. Numerous studies have found there is a negative relationship between government size and economic growth. Given the mushrooming number of government services, taxpayers deserve to know what kind of value they are getting for their money. This study analyzes the size, growth, efficiency, and cost-effectiveness of government across 34 OECD countries and develops a measure for public sector efficiency it dubs the “cost-effectiveness index.” The results reveal that the most efficient public sector is found in South Korea, followed by Luxembourg, Switzerland, Australia, Norway, Chile, Mexico, Canada, the United States, and Japan. At the other end of the spectrum are Poland, Portugal, Greece, Hungary, and Turkey.
National SecurityBy Bruce Klingner, The Heritage FoundationTestimony, 04/03/2014
Experts predominantly assert that the Democratic People’s Republic of Korea has developed several nuclear devices but not yet mastered the ability to miniaturize the warhead nor deliver it via missile. Media reports habitually declare that North Korean missiles cannot yet reach the United States. Based on this benign conclusion, policymakers presume the United States and its allies still have several years to diplomatically constrain North Korea’s nuclear program, pursue timidly incremental sanctions, and prepare military defenses. However, this analytic construct is flawed since, for example, it gives insufficient weight to Pyongyang’s lengthy collaborative nuclear and missile relationship with Pakistan. North Korea has likely made greater progress than perceived—warhead miniaturization, the ability to place nuclear weapons on its short-range missiles and a preliminary ability to reach the United States. As such, the United States and its allies face a greater threat today than is widely construed.