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Back into the Armory


Here’s some useful intellectual ammunition from the nation’s leading think tanks:

• The debate about the current financial crisis is full of conflicting and often confusing claims. The Cato Institute’s Gerald O’Driscoll sorts out the apparent contradiction between fear of deflation and predictions of inflation here. While the Fed and others worry about a true deflation, a sustained fall in prices across economic sectors, O’Driscoll argues that the current phenomenon mostly reflects a pricked bubble in commodity prices, particularly oil. The Fed’s aggressive expansion of the money supply has neutralized the deflation risk, but at a cost. “The Fed has created lakes of credit, he writes. “Those lakes are now dammed up by fear and caution — but when the dam bursts, it may unleash inflationary forces that will be hard to contain. Just as 1 percent interest rates under Alan Greenspan brought us a housing bubble, 0 percent under Bernanke may unleash a new bubble.”

• As to the origins of the financial meltdown, former Jersey City Mayor Bret Schundler, a former Wall Street executive, discussed recent monetary policy with the Reason Foundation’s Anthony Randazzo. Schundler lays out the case against the Fed and other central bankers — that they overreacted to 9/11 by keeping interest rates artificially low, thus creating asset bubbles and excessive borrowing — while also explaining the counterargument that without the easing of monetary policy in 2002-03, the worldwide economy would have gone into a deep recession then. Disputes about how best to measure inflation lay at the heart of this, as is so often true. I also like Schundler’s names for the two sides: the “gold-standard libertarians” and the “perfect-storm economists.”

• Zeroing in on the oil bubble, the Heritage Foundation’s Ariel Cohen and Owen Graham offer an informative backgrounder on recent price trends and their implications for the economy, energy policy, and national security. Uncertainty is the watchword, according to the authors. One possible future may be pretty bleak for American motorists — economic recovery in China and India leading to resurgence in demand and gas prices higher than we saw this summer. Cohen and Graham aren’t sanguine about the possibility of large-scale increases in oil production over the next two decades. In addition to calling for an end to government blockage of new oil exploration, they say that changes in tax law would help with the capital formation necessary to drill more efficiently and convert other fuels to economical use.

• Switching topics, two elements of any successful conservative strategy for addressing the concerns of middle-class families are education and traffic. The Buckeye Institute in Ohio has a new piece explaining a refashioned version of the school-choice argument that’s becoming popular in many states: child-centered funding. The concept is simply to make government funding follow the child from school to school, rather than funding institutions and spending categories directly. Even within public districts, the concept would be beneficial. “Public schools are nominally ‘free,’ but pricing, which implicitly occurs through housing markets, fundamentally limits access to better schools and consigns less wealthy families to less desirable schools,” writes Brian Gottlob. “The subsequent separation of students along class lines also means that the non-financial inputs critical to good schools, such as peer and family influences, can be even more unevenly distributed than financial resources.”

• As for traffic congestion, one of the most frustrating cities for commuters is Atlanta, and the Georgia Public Policy Foundation is offering specific recommendations that reflect the best of conservative thinking about highway finance, road pricing, and allocating transportation resources on the basis of hard data rather than pipe dreams. One important idea that is often overlooked: create new freight lanes for trucks. Most of our commerce still moves across the country on rows of rubber wheels, but it doesn’t move fast enough. Rail freight is one solution (as long as we don’t let overpriced and underused passenger trains get in the way) but truck-only tollways are another.


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