Quantitative Easing: A Requiem

When the Federal Open Market Committee (FOMC) meets in Washington next week, its members are widely expected to vote to raise interest rates for the first time since June 2006. By doing so, they will move towards monetary policy normalization, after more than seven years of near-zero interest rates, and a vast expansion of the central bank’s balance sheet.

But how did monetary policy become so abnormal in the first place? Were the Fed’s unconventional monetary policies a success? And how smoothly will implementation of the Fed’s so-called “exit strategy” go? These are among the questions addressed by Dan Thornton, a former vice president of the Federal Reserve Bank of St. Louis, in “Requiem for QE,” the latest Policy Analysis from Cato’s Center for Monetary and Financial Alternatives. Continue reading

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Rethinking Monetary Policy – Cato’s 33rd Annual Monetary Conference

More than two hundred people gathered at the Cato Institute last Thursday for our 33rd Annual Monetary Conference. Over the course of three addresses and four panel discussions, a distinguished cast of speakers — including St. Louis Fed president James Bullard, Richmond Fed president Jeffrey Lacker, and Stanford economist John Taylor — covered topics ranging from the rights and wrongs of monetary rules, to the ins and outs of the Fed’s long-awaited “exit strategy” from quantitative easing and near-zero interest rates. If you didn’t make the event, here’s a synopsis. Continue reading

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Reforming the Federal Reserve’s Rescue Authority: Warren and Vitter Come to Cato

For all the ink spilled on TARP — the bailout package authorizing the Treasury to purchase or insure up to $700 billion of “troubled assets” during the financial crisis — that program is dwarfed by another market intervention that occurred around the same time.  In fact, the Government Accountability Office estimates that the Federal Reserve lent more than $16 trillion to financial firms between December 2007 and July 2010 — a figure that comes close to matching the entire, annual gross domestic product of the United States. Continue reading

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The Implications of Scottish Independence

The referendum polling stations are closed. By now, some three million Scots will have had their say on whether Scotland should be an independent country. There will be no exit polls and the votes will be counted by hand. But sometime between midnight and 2 a.m. Eastern Daylight Time, we should have a result.

The outcome is genuinely too close to call. The latest poll, published this morning by The Times of London, has the “Better Together” campaign up by four points, 52–48 percent, with four percent still undecided. But that, like most opinion polls in recent days, is well within the margin for error. An upset is still very possible.

But why would Scotland vote for independence, when 307 years of union with England has served them—and the United Kingdom as a whole—so well? What are the practical implications of a “Yes” vote? And which side should libertarians be on? These questions bear some examination, so read on if you want to know more.  Continue reading

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E.U. Election Results: A Guide to Europe’s Political Factions

For those of us who are more used to two-party democracy, last week’s elections to the European Parliament could easily be a source of confusion. By my estimate, the European Parliament’s 751 seats will soon be divided between representatives of 198 different national parties, themselves organized into seven (or possibly eight) official groups—with each of those representing a political faction that draws support from at least 25 members of the European Parliament (MEPs) who must, between them, represent no fewer than seven of the E.U.’s 28 member states. Got it?

If you want to know more, read on for a guide to Europe’s main political factions, how they did in last week’s elections, and what it means for the future of the European Union. Continue reading

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How Libertarian is the UK Independence Party?

The UK Independence Party (UKIP), which is on course to either win or come a close second in the British segment of this week’s elections to the European Parliament, describes itself as a “libertarian, non-racist party seeking Britain’s withdrawal from the European Union.” How apt is that description?

The third part—seeking withdrawal from the European Union—is undeniably true. The second part—non-racist—has prompted raised eyebrows in some quarters. But having met many of the party’s officials, activists, and candidates over the years (including this wonderfully straight-talking chap), I’m prepared to give UKIP the benefit of the doubt. But does UKIP deserve the label “libertarian”? Here, I’m with Rational Optimist Matt Ridley:

As the Ukip campaign ploughs steadily farther off the rails into the anti-immigrant bushes, in search presumably of former British National Party voters, it becomes ever easier for small-government, classical liberals—like me—to resist its allure. Nigel Farage once advocated flat taxes, drug decriminalisation and spending cuts. Now his party has dropped the flat tax, opposes zero-hours contracts, is hostile to gay marriage and talks about subsidising farmers and growing the defence budget.

To be clear, there are some libertarians involved in UKIP, and more supporting it from the sidelines. The party’s antipathy toward the political elite certainly has a libertarian flavor to it, as do a few of its individual policies. But UKIP has always been an uncomfortable alliance of libertarianism and populist nationalism. And in recent years, it is very much the populist nationalism that has come to the fore. Now, as Dr Matthew Goodwin, co-author of Revolt on the Rightputs it:

UKIP are winning over the “Left Behind” groups in British society… These are voters who hold a very different set of values to the professional, middle-class majority: they are far more nationalist, Eurosceptic, fiercely opposed to immigration and feel like they have no voice in politics. They look out at a country they neither recognize nor want to be a part of.

In this context, it is hard to see a UKIP electoral victory striking much of a blow for individual freedom. It may represent a kick in the face for an out-of-touch political class, but—alas—it isn’t libertarians doing the kicking.

UKIP may once have been a libertarian political force. But for me, that label has been out-of-date since at least 2010, when the party ran its UK general election campaign on a virulently anti-immigration platform. Since then, the party has been beating an ever-more reactionary path. Libertarians still cheering its rising fortunes should perhaps be careful what they wish for.

Originally published at Reason.com.

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Do the European Elections Matter?

Historically, elections to the European Parliament haven’t mattered much, even to Europeans. Their main role has been to give disgruntled voters a chance to deliver a good shellacking to the parties in charge of national governments. Like mid-terms, then, but with little potential to alter the balance of power or sway the course of policy. The fundamental indifference of Europe’s voters has been reflected in turnout percentages, which have fallen at every election since the European Parliament was established in 1979. Most expect turnout to reach a new low this year, falling below the 43 percent figure from 2009.

To a certain extent, this lack of enthusiasm is hard-wired into the structure of the European Union (E.U.). For starters, the European Parliament has not traditionally had much power. It still can’t initiate legislation, which is the sole preserve of the European Commission, the EU’s permanent bureaucracy. What’s more, the European Parliament—which houses representatives from more than 100 national parties, grouped into 12 European parties, and then grouped again into seven different alliances—feels very remote to most voters. What power the European Parliament does have is often exercised through back-room deals concluded by politicians the voters don’t know, on behalf of parties and alliances they’ve never heard of. A vibrant democracy this most certainly is not.

And yet the 2014 elections—which begin on Thursday in the UK and the Netherlands—may be different. For one thing, the 2009 Lisbon Treaty extended the European Parliament’s power to approve, amend, or block legislation to 40 additional areas of policy. It also gave the European Parliament a greater say on the EU budget, as well as a range of international agreements (including, for example, the proposed U.S.–E.U. trade deal). Legislators have not been shy about exercising their new powers: The Financial Timesnotes that they now wield more influence than their limited constitutional role would suggest.

The latest power-grab involves each parliamentary group nominating a “lead candidate” in the elections, and demanding that the victor be made president of the European Commission. It remains to be seen whether the European Council—consisting of the heads of the E.U.’s 28 national governments—will accept this usurpation of its authority, but if it does, the consequences for E.U. policy could be significant. The European Commission has traditionally been a force for liberalization and market competition; the European Parliament, by contrast, tends to prefer regulation and protectionism.

This matters because the E.U. is at an important crossroads in policy terms. The eurozone crisis may have abated for now, but growth remains sluggish, unemployment is shockingly high, and a Japanese-style “lost decade” looms on the horizon. And that’s to say nothing of renewed geopolitical instability in the E.U.’s own backyard. Europe desperately needs to liberalize its labor and consumer markets, strengthen its trade links with other economies (not least the U.S.), and develop an energy policy that doesn’t leave it reliant on the Kremlin to keep the lights on. For better or worse, the European election results will go some way to determining whether any of this is possible.

One crucial factor will be the electoral performance of Europe’s insurgent populist parties, which may end up controlling more than a quarter of the seats in parliament. These parties do not constitute an homogenous political force—Italy’s anti-establishment but relatively liberal Five Star Movement has little in common with Greece’s neofascist Golden Dawn, for instance. But for the most part, Europe’s populists are skeptical of European integration, suspicious of globalization, and hostile to immigration. The most extreme among them can be downright nativist. Their rise to prominence gives libertarians precious little to cheer: The result can only be a Europe that is more illiberal and less free market.

So do the European elections matter? In so far as they give some indication of the economic prospects of the world’s biggest market, the fate of the U.S.–E.U. trade deal, and the future complexion of a political union serving more than 500 million people, the answer to that question must be “yes.”

Originally published at Reason.com.

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