You are browsing the archive for 2015 May 27.

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Wall Street Offers Very Real Benefits

May 27, 2015 in Economics

By Thaya Knight

Thaya Knight

Not every person on Wall Street is a morally corrupt Gordon Gekko. Do Wall Street traders want to make money? Yes. Are they generally people who thrive in a fast-paced, competitive environment? You bet. And that is a good thing.

While the news about corruption, corporate welfare and lawbreaking is very bad, it doesn’t mean the entire industry is rotten.”

At its core, here’s what Wall Street does: It makes sure that companies doing useful things get the money they need to keep doing those things. Do you like your smartphone? Does it make your life easier? The company that made that phone got the money to develop the product and get it into the store where you bought it with the help of Wall Street.

When a company wants to expand, or make a new product, or improve its old products, it needs money, and it often gets that money by selling stock or bonds. That helps those companies, the broader economy and consumers generally.

When we have flashing headlines about Wall Street traders acting badly, as we had last week with news of five major banks pleading guilty to criminal charges, it is very easy to hate Wall Street. But we only hear headlines about the worst behavior.

No one writes news stories about traders who go about their business every day, carefully complying with the many (and there are many) rules and regulations that govern their work. Also, the financial sector, which is usually what people mean when they say “Wall Street,” isn’t only or even mostly the big banks.

There are small firms, banks, funds and advisers that make up a large portion of our financial industry. While the news about corruption, corporate welfare and lawbreaking is very bad, it doesn’t mean the entire industry is rotten. Or, more important, that we don’t need it.

Wall Street could be better. We could eliminate regulations that crowd out competition for the big banks. We could reform the system to do away with “too big to fail,” making it harder for bad traders to get away with bad behavior. Either way, we shouldn’t lose sight of the very real economic and social benefits Wall Street provides.

Thaya Knight is associate director of financial regulation studies at the Cato Institute.

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Source: OP-EDS

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A So-So Republican Budget

May 27, 2015 in Economics

By Michael D. Tanner

Michael D. Tanner

There was none of the sturm und drang that has accompanied past budget battles, but earlier this month the Republican-controlled Congress passed the first fully Republican budget since 2005. A historic event, to be sure, but, given that it has been a decade since Republicans had this ability to shape federal tax and spending policy, it is disappointing that the end result was such mediocre gruel.

First the good news: The budget would spend $6 billion less over the next 10 years than the current baselines, and would, in theory, balance by 2024. The agreement at least ostensibly sticks to the budget caps agreed to under sequestration, although it circumvents them in a way by shifting more funds to “overseas contingency operations” (OCO), which are not subject to the caps.

It contains some positive steps, but also some sleight-of-hand and increased spending.”

Moreover, as valuable as the sequester caps have proven to be in restraining spending, they remain a blunt instrument that allows Congress to avoid truly tough decisions. As one bad sign, the budget agreement takes note of $140 billion in needed health-care savings to offset the cost of the recent “doc fix” agreement, but doesn’t actually propose any specific cuts. On the other hand, the budget resolution establishes a deficit-neutral reserve fund that could allow for some reallocations that would give policymakers flexibility to replace sequestration with other cuts as long as those actions don’t increase the ten-year deficit. We will have to see how this plays out in a practical sense, but if the deficit-neutrality is strict enough, it could potentially be an improvement.

The budget resolution also engages in some serious sleight-of-hand when it comes to defense spending. The resolution keeps the sequester caps on defense in place, but only by shifting some $38 billion in spending for next year to the OCO account, essentially using this war-fighting appropriation as a slush fund. The final budget agreement also removed a Senate provision requiring 60 votes to add future funds to the OCO without offsetting spending cuts.

We should also remember that, while a balanced budget is important, it is not as important as reducing overall levels of federal spending. And the GOP budget envisions spending $1.14 trillion more (in nominal dollars) by 2025. That is not a good thing just because tax revenues will rise fast enough to offset the increases.

The budget’s biggest failing …read more

Source: OP-EDS

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The Ultimate Irony: Is China the 'America' of Asia?

May 27, 2015 in Economics

By Doug Bandow

Doug Bandow

The rising nation was full of self-confidence and determined to expand. Its neighbor refused to negotiate in a bitter territorial dispute, convinced there was no legitimate issue to discuss. The new entrant to the international order also challenged the world’s greatest global power, which was forced to decide whether war could be justified against a country thousands of miles from home. The upstart’s territorial claims were excessive, but no one desired a rerun of past conflicts.

The year was 1845. The United States had absorbed Texas after the latter’s violent secession from Mexico; Washington demanded its neighbor’s acquiescence not only to the errant territory’s annexation but also to a new national boundary set well beyond Anglo settlements. The United States backed its position with provocative military maneuvers, occupying disputed territory. War soon resulted.

Around the same time Washington took an equally truculent position in dealing with Great Britain over the far western boundary between America and Canada. Where prior agreements had left ambiguity, the United States saw certainty. Some Americans proclaimed “54-40 or fight,” wanting to push the Oregon border up to the Russian territory (Alaska) later sold to the United States. The Polk administration took a less extreme position and London accommodated the arrogant juvenile nation, a necessary step in ultimately developing the “special relationship” between onetime enemies.

Today Beijing’s actions in the East Asian waters have a similar feel. The international and regional order is under strain as the People’s Republic of China (PRC) has become an economic colossus with growing military might and diplomatic influence. Control of islands offer resource ownership and maritime primacy, encouraging the PRC to assert territorial claims once considered impractical or worthless.

Beijing’s claims in Asia look extravagant, however, they are as valid as those made by the United States against Mexico and Great Britain in the mid-19th century.”

Although America’s military remains supreme, the U.S. presence no longer intimidates. Beijing has become increasingly assertive, even truculent. Analysts spin scenarios in which America and China end up at war over some “damn fool thing” in the western Pacific rather than the Balkans, as was the case in World War I.

The waters of East Asia are filled with islands, including the Diaoyu/Senkaku, Nansha/Spratly, and Xisha/Paracel Islands, as well as Huangyan Island/Scarborough Reef.  (For simplicity’s sake I will use the latter names, more familiar in the United States)  The PRC claims all …read more

Source: OP-EDS

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Designer Drugs: A New, Futile Front in the War on Illegal Drugs

May 27, 2015 in Economics

Even as officials devote billions of dollars each year to enforcing laws against marijuana, cocaine, and other drugs, the market for synthetic equivalents or variations has soared.  In a new paper, Cato scholar Ted Galen Carpenter argues that the problems associated with suppressing the use of designer drugs underscores the inherent futility of the broader War on Drugs. “Instead of persisting in the failed strategy of drug prohibition,” says Carpenter, “policymakers should examine ways to accommodate legal markets in mind-altering substances while promoting public safety by requiring strict production standards to prevent contamination or mislabeling.”

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Source: CATO HEADLINES