My Cato colleague John Cochrane – who is way smarter than I am — has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:

Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…

The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…

The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…

Sure, churches should be exempt. We should all be exempt.

My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”

That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything – and they’re willing to pay the outrageous premiums that would accompany such coverage — why should we take issue with that?

ObamaCare’s contraceptive-coverage mandate demonstrates that government does  a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.

Cochrane on ObamaCare’s Contraceptive-Coverage Mandate is a post from Cato @ Liberty - Cato Institute Blog

Associated Press photojournalist Noah Berger captured this thousand-word image near the Occupy Oakland demonstrations last month.

(AP Photo/Noah Berger)

Many Cato@Liberty readers will get it immediately. They can stop reading now.

For everyone else, this image perfectly illustrates the ethos of what I call the Church of Universal Coverage.

Like everyone who supports a government guarantee of access to medical care, the genius who left this graffiti on Kaiser Permanente’s offices probably thought he was signaling how important other human beings are to him. He wants them to get health care after all. He was willing to expend resources to transmit that signal: a few dollars for a can of spray paint (assuming he didn’t steal it) plus his time. He probably even felt good about himself afterward.

Unfortunately, the money and time this genius spent vandalizing other people’s property are resources that could have gone toward, say, buying him health insurance. Or providing a flu shot to a senior citizen. This genius has also forced Kaiser Permanente to divert resources away from healing the sick. Kaiser now has to spend money on a pressure washer and whatever else one uses to remove graffiti from those surfaces (e.g., water, labor).

The broader Church of Universal Coverage spends resources campaigning for a government guarantee of access to medical care. Those resources likewise could have been used to purchase medical care for, say, the poor. The Church’s efforts impel opponents of such a guarantee to spend resources fighting it. For the most part, though, they encourage interest groups to expend resources to bend that guarantee toward their own selfish ends. The taxes required to effectuate that (warped) guarantee reduce economic productivity both among those whose taxes enable, and those who receive, the resulting government transfers.

In the end, that very government guarantee ends up leaving people with less purchasing power and undermining the market’s ability to discover cost-saving innovations that bring better health care within the reach of the needy. That’s to say nothing of the rights that the Church of Universal Coverage tramples along the way: yours, mine, Kaiser Permanente’s, the Catholic Church’s…

I see no moral distinction between the Church of Universal Coverage and this genius. Both spend time and money to undermine other people’s rights as well as their own stated goal of “health care for everybody.”

Of course, it is always possible that, as with their foot soldier in Oakland, the Church’s efforts are as much about making a statement and feeling better about themselves as anything else.

The Ethos of Universal Coverage is a post from Cato @ Liberty - Cato Institute Blog

Russian philosopher Leonid Nikonov explains the differences between socialism, cronyism, and free market capitalism.  Nikonov is a contributor to The Morality of Capitalism, a new book that is being distributed worldwide by the Atlas Network and the Students for Liberty.  (You can download the introduction to the book here.)  Students can obtain copies of the book here; all others can obtain copies here.)

Free Market Capitalism vs. Cronyism in Russia is a post from Cato @ Liberty - Cato Institute Blog

Today POLITICO Arena asks:

House Republicans are expected to approve a bill on Wednesday that would repeal the Obama health care law. But they are not yet offering a specific replacement for “Obamacare”. Will they pay a price politically for not immediately presenting an alternative? Or is the 2010 law sufficiently unpopular that repeal itself will be enough heading into the 2012 elections?

My response:

Does anyone really expect the scores of new House Republicans, who’ve just now arrived in Washington, to already have a plan to replace ObamaCare? Let’s be serious. The first step for new members is to keep their campaign promise by voting to repeal this unpopular scheme – if for none other than symbolic reasons. The next is to hold hearings and then to start defunding various of its provisions. And in the course of that, a better approach will emerge, one hopes. Remember, Republicans were shut out of the process that created ObamaCare.

Yet at the Arena this morning we see the usual Democratic responses. Timothy Jost writes, for example: ”Health care is rapidly becoming unfordable [sic]; to the government, to employers, to ordinary Americans.” So government, for which health care is becoming unaffordable, is going to solve that problem?! How? By printing money? By imposing price and service controls? That’ll be popular — with doctors and patients alike!

The basic problem is too much government in the health care arena. It’s anything today but a market. Those approaches that have reintroduce market forces — like health savings accounts — have worked quite well. We have them at Cato. We like them. But they won’t be allowed under ObamaCare. Why? Because the Democrats know what’s best for us. What’s best, they believe, is for us to be dependent on government for our health care. No thanks.

ObamaCare, Round 2 is a post from Cato @ Liberty - Cato Institute Blog

This month at Cato Unbound, political scientist James C. Scott joins us in a discussion of his landmark book Seeing Like a State. His lead essay “The Trouble with the View from Above” gets readers up to speed and reviews some of the key themes of the book. Here’s an excerpt:

State naming practices and local, customary naming practices are strikingly different. Each set of practices is designed to make the human and physical landscape legible, by sharply identifying a unique individual, a household, or a singular geographic feature. Yet they are each devised by very distinct agents for whom the purposes of identification are radically different. Purely local, customary practices, as we shall see, achieve a level of precision and clarity—often with impressive economy—perfectly suited to the needs of knowledgeable locals. State naming practices are, by contrast, constructed to guide an official “stranger” in unambiguously identifying persons and places, not just in a single locality, but in many localities using standardized administrative techniques.

To follow the progress of state-making is, among other things, to trace the elaboration and application of novel systems which name and classify places, roads, people, and, above all, property. These state projects of legibility overlay, and often supersede, local practices. Where local practices persist, they are typically relevant to a narrower and narrower range of interaction within the confines of a face-to-face community.

Local knowledge both empowers and constrains — it allows and/or encourages some social practices, while making others more difficult. The progress of state power, meanwhile, depends on systematized, uniform knowledge of a wide area, with a loss of local particularity and the knowledge that goes with it. Seeing like a state has costs, in other words.

Over the next couple of weeks, we’ll be joined by discussants Donald Boudreaux, Brad DeLong, and Timothy Lee, each of whom will have a chance to ask Scott about his work, discuss its significance, and relate it to their own thinking about states, markets, and societies.

James C. Scott at Cato Unbound is a post from Cato @ Liberty - Cato Institute Blog

The Atlantic has posted (h/t Future of Capitalism) an article by Virginia artisanal meat provider Joe Cloud sounding the alarm about how as regulation intensifies, only producers with the scale and sophistication to deal with it will be left standing:

Although species go extinct on Earth on a regular basis, every so often there is a major event that comes along and wipes out 40 or 50 percent of them. The same thing happens in the small business world. A few businesses fold every year due to retirement, poor management, and changes in the market, and that is quite normal. But then every so often a catastrophe comes along and causes a wholesale wipeout.

For small meat businesses in America, catastrophic events result from changes high up in the regulatory food chain that make it very difficult for small plants to adapt. The most recent extinction event occurred at the turn of the millennium, when small and very small USDA-inspected slaughter and processing plants were required to adopt the costly Hazard Analysis and Critical Control Point (HACCP) food safety plan. It has been estimated that 20 percent of existing small plants, and perhaps more, went out of business at that time. Now, proposed changes to HACCP for small and very small USDA-inspected plants threaten to take down many of the ones that remain, making healthy, local meats a rare commodity.

I’ve been following this particular controversy for a while, and perhaps its most depressing aspect is how very typical the pattern is. In 2008, following demands that it do something about much-publicized Chinese toy recalls, Congress passed the Consumer Product Safety Improvement Act, which devastated many hundreds of smaller manufacturers, importers and retailers of children’s clothing and playthings while leaving relatively unscathed Mattel, Hasbro, and the biggest discount retailers (all of which had in fact supported passage of the law). More recently, major food and agribusiness firms have signed on to support a major new round of federal food safety regulation despite warnings that it could pose big compliance challenges for many local bakers, fruit-baggers, and other small providers whether or not their products pose any notable risks.

I generally share many of the views of the “locavore” movement regarding the value of distinctive local food cultures and the importance to kids and cooks of getting a more direct sense where food comes from. Trouble is, some of us who imagine ourselves friendly to locavore thinking reflexively support whatever regulatory proposals are billed as most stringent and thus most protective. By the time we realize the choices we have lost, it can be too late.

Goodbye to Locally Processed Meats? is a post from Cato @ Liberty - Cato Institute Blog

California just adopted effective next year a requirement that all new one- and two-family dwellings include indoor sprinkler systems. Other states are debating similar mandates, spurred by changes to national building code standards. Earlier legal mandates have required the inclusion of smoke alarms and carbon monoxide alarms, but the cost of those devices is relatively minor, whereas full-blown sprinkler systems add measurably to the cost of a new home, as well as posing challenges in such areas as maintenance, aesthetics, and risk of property damage through accidental activation.

It will surprise not a single reader of these columns, I suspect, to learn that the fire sprinkler industry has been a major force in pushing the new mandate. As for the opposition, home builders have managed to mount a bit of resistance — New Jersey, for example, saw the current depressed state of the residential construction business as reason to postpone its mandate for a year. But the builders are pretty much on their own in the fight, since future buyers of new homes are a group with no organized political presence whatsoever.

Real estate blogger Christopher Fountain writes that he’s “never heard of a home buyer voluntarily ordering this equipment when building a house, so it sounds to me like one more instance of people who know better dictating to those who don’t.” Exactly. A South Carolina paper quotes a state official as saying if buyers feel priced out of the new home market by the cost of the mandate, they have other ways to save money “such as choosing less expensive flooring or countertops, or not installing yard sprinklers”. Easy to make someone else’s budget decisions for them, isn’t it? And shouldn’t the “affordable housing” community be taking more of an interest?

Guess Who’s Behind the New Fire-Sprinkler Mandates is a post from Cato @ Liberty - Cato Institute Blog

Tim Carney has a blog post at the Examiner that’s worth quoting in full:

The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R-Tex. — certainly one of the two most free-market politicians in Washington — gets the lowest score of any Republican.

Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:

• Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
• Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
• Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.

(Rep John Duncan, R-Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)

I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free-market agenda:

Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.

Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro-business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro-business” is not the same as “pro-freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.

I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber’s position than to Ron Paul’s. But to suggest that Paul is wrong to vote against business subsidies — or that DeMint was wrong to vote against Bush’s 2008 stimulus package and the $700 billion TARP bailout – certainly does illustrate how much difference there can be between “pro-business” and “pro-market.” Instead of “Spirit of Enterprise,” the Chamber should call these the “Spirit of Subsidy Awards.”

Ron Paul, the Chamber of Commerce, and Economic Freedom is a post from Cato @ Liberty - Cato Institute Blog

The U.S.-China Business Council has performed a valuable public service by marshalling state-by-state figures on exports to China. In its annual survey, released this morning, the USCBC documents that 19 states exported $1 billion or more in 2009 to China, which is now the third largest market for U.S. exports.

In a statement accompanying the report, the USCBC noted that exports to China declined only slightly in 2009, compared to a 20 percent plunge in exports to the rest of the world. Top U.S. exports to China last year were computers and electronics, agricultural products, chemicals, and transportation equipment.

The USCBC figures tend to undercut complaints that China’s currency policies have stymied U.S. exports to that country. In fact, as I argued in an op-ed in the Los Angeles Times last week, since 2005, U.S. exports to China have been growing three times faster than our exports to the rest of the world.

There is agreement across the spectrum that the Chinese government should continue to move toward a more flexible, market-priced currency. But the export numbers do not give any support to the critics who want to threaten sanctions against China. In fact, as I concluded in my op-ed:

If the Obama administration hopes to double U.S. exports in the next five years, as the president announced in his State of the Union address, it should praise China for its growing appetite for U.S. goods and services, not threaten it with trade sanctions. Any company hoping to double its sales in the next five years would be foolish to pick a needless fight with one of its best customers.

19 U.S. States Sold $1 Billion or More in China in 2009 is a post from Cato @ Liberty - Cato Institute Blog

President Obama seems to be slowly waking up to the fact that the American public has grown tired of the endless bailout of Fannie Mae and Freddie Mac.  The public has also rejected the talking point that Fannie and Freddie were simply victims of a 100 year storm in the housing market.  So what’s Obama’s response?  To ask for public comment and have public forums.

This strategy is clearly one of delaying and avoiding any reform of Fannie and Freddie while pretending to care about the issue.  Where was the public comment and forums on the Volcker rule?  Seemingly the standard is that fixing the real causes of the financial crisis should be delayed and debated while efforts like the Dodd bill, which do nothing to avoid future financial crises, should be rushed without debate or comment.

Even more disingenious is couching reform of Fannie and Freddie under the rubic of “fixing mortgage finance”.  This is no more than an attempt to take the focus away from Fannie and Freddie and shift it to “abusive lending” and other non-causes of the crisis.

This isn’t rocket science.  The role of Fannie and Freddie in the financial crisis is well understood.  The only thing missing is the willingness of Obama and Congress to stand up to the special interests and protect the taxpayer against future bailouts.

Obama Proposes Further Delay on Fannie & Freddie is a post from Cato @ Liberty - Cato Institute Blog

Alex Nowrasteh and Ryan Young of the Competitive Enterprise Institute make the case for immigration reform in an especially appealing way in a fresh op-ed this week in the Detroit News.

In a commentary article titled, “Fix immigration rules to crush black market,” they dissect a well-meaning but flawed Obama administration effort to fix the dysfunctional H-2A visa program for temporary farm workers. Instead of fine tuning an unworkable law, Nowrasteh and Young advocate liberalization:

That means making H-2A visas inexpensive, easy to obtain, and keeping the related paperwork and regulations to a minimum. That means no minimum wage hike. No costly background check requirements. People rarely break laws that are reasonable and easy to obey.

When legal channels cost too much in time and money, people will turn to illegal channels every time. That’s how the world works. Getting rid of immigration’s black market begins with admitting that fact.

Hear, hear.

Ending the Black Market in Low-skilled Labor is a post from Cato @ Liberty - Cato Institute Blog

The Federal Housing Administration is heading toward a taxpayer bailout, yet the president’s latest mortgage modification plan would further increase the agency’s exposure to risky mortgages. Mark Calabria calls it a “Backdoor Bank Bailout.”

The administration’s plan would encourage borrowers who owe more than their house is worth to refinance into FHA-insured mortgages. Therefore, the risk of a future foreclosure on these mortgages would fall to the government and taxpayers instead of private lenders.

A recent study from economists at New York University found that the FHA is underestimating its risk exposure. One of the problems is that the FHA isn’t properly accounting for the risk to underwater FHA mortgages that have been refinanced into new FHA mortgages. So it’s hard to see how the president’s plan to refinance private underwater mortgages into FHA mortgages won’t further exacerbate the situation.

To get these mortgages in better shape so the FHA can insure them, $14 billion in TARP money is going to be used to pay private lenders to reduce the amount borrowers owe on their mortgages. Some of this money will also be used to cover eventual losses on these loans. As a taxpayer whose mortgage is underwater, and who would rather go bankrupt than accept a government handout, I find it infuriating that my tax dollars are being used to bail out others in a similar situation.

But with government housing programs, it’s standard practice for officials to cannonball into the pool and worry about who gets splashed by the water later. On Sunday, CNN.com reported on “FHA’s Florida Fiasco,” where the collapse of the heavily FHA-insured condo market has contributed to the possibility of a FHA bailout. The FHA has now tightened its condo standards, but once again it’s a day late and possibly more than few bucks short.

The new FHA initiative is the latest in a series of efforts to “stabilize” the housing market with more subsidies. Policymakers seem oblivious that it was government interventions that helped instigate the housing meltdown to begin with. The housing market would stabilize itself if the supply of and demand for housing was allowed to be brought back into equilibrium. There would be pain in the short-term, but in the long-term we would have a smoother functioning housing market. Unfortunately, for politicians the long-term means the next election.

Obama to Increase FHA Risk is a post from Cato @ Liberty - Cato Institute Blog

• Idea of the day: Repeal the 16th Amendment, which  gives Congress the power to lay and collect taxes. Replace it with an amendment that requires each state to remit to the federal government a certain percent of its tax revenue.

• Economist Richard Rahn on the necessity of failure in the market: “When government becomes a player and tries to prevent the failure of market participants, its decisions are almost invariably corrupted by the political process.”

• Read up on Goodwin Liu, Obama’s nominee for a seat on the 9th Circuit Court of Appeals: “Liu’s confirmation would compromise the judiciary’s check on legislative overreach and push the courts not only to ratify such constitutional abominations as the individual health insurance mandate but to establish socialized health care as a legal mandate itself.”

• Nuclear arms treaty set for April. It’s a long time coming.

• Podcast: “China, Currency and Trade Demagogues” featuring Daniel J. Ikenson.

Wednesday Links is a post from Cato @ Liberty - Cato Institute Blog

Moody’s has announced that it will change its methods for rating debt issued by state and local governments.  Politicians have argued that its current ratings ignore the historically low default rate of municipal bonds, resulting in higher interest rates being paid on muni debt, or so argue the politicians.

First this argument ignores that the market determines the cost of borrowing, not the rating.  And while ratings are considered by market participants, one can easily find similarly rated bonds that trade at different yields.

Second, while ratings should give some weight to historical performance, far more weight should be given to expected future performance.  Regardless of how say California-issued debt has performed in the past, does anyone doubt that California, or many other municipalities, are in fiscal straights right now?

Last and not least, politicians have no business telling rating agencies how to handle different types of investments.  We’ve been down this road before with Fannie Mae and Freddie Mac.  During drafting of GSE reform bills in the past, politicians put constant pressure on the rating agencies to maintain Fannie and Freddie’s AAA status.

The gaming over muni ratings illustrates all the more why we need to end the rating agencies govt created monopoly.  As long as govt has imposed a system protecting the rating agencies from market pressures, those agencies will bend to the will of politicians in order to protect that status.  As Fannie and Freddie have demonstrated, it ends up being the taxpayers and the investors who ultimately pay for this political meddling.

Moody’s Caves In to Political Pressure on Municipal Bonds is a post from Cato @ Liberty - Cato Institute Blog

I suspect I may be falling into a publicity trap here, but nonetheless I am unable to resist blogging about an email I received this morning from the Global Development and Environment Institute at Tufts University.  The email contained this teaser:

How does cheap food contribute to global hunger?  GDAE’s Timothy A. Wise, in this recent article in Resurgence magazine, explains the contradictory nature of food and agriculture under globalization. He refers to globalization as “the cheapening of everything” and concludes:

“Some things just shouldn’t be cheapened. The market is very good at establishing the value of many things but it is not a good substitute for human values. Societies need to determine their own human values, not let the market do it for them. There are some essential things, such as our land and the life-sustaining foods it can produce, that should not be cheapened.”

This sort of stuff could only be written by someone on full academic tenure and who has never had to worry about feeding his family.

It would take many hours to rebut all of the idiocies contained in the full article, but for now I will just say: Yes, it is true that U.S. government subsidies for corn, for example, cause environmental damage in the Gulf of Mexico (Cato scholars have in fact covered this before as part of our ongoing campaign to eliminate farm subsidies). And yes, poor farmers abroad have suffered because of government intervention in food markets. But those are problems stemming from government intervention, not the free market.

Tufts Academic Gives Two Thumbs Down to Cheap Food is a post from Cato @ Liberty - Cato Institute Blog

The Associated Press reports:

Buyers, beware: President Barack Obama says his health care overhaul will lower premiums by double digits, but check the fine print…

The [Congressional Budget Office] concluded that premiums for people buying their own coverage would go up by an average of 10 percent to 13 percent, compared with the levels they’d reach without the legislation…

“People are likely to not buy the same low-value policies they are buying now,” said health economist Len Nichols of George Mason University. “If they did buy the same value plans … the premium would be lower than it is now. This makes the White House statement true. But is it possibly misleading for some people? Sure.”

Nichols’ comments are also misleading — which makes the president’s statement not just misleading but untrue.

Under ObamaCare, people would not have the option to buy the same low-cost plans they do today.  That’s the whole problem: under an individual mandate, everybody must purchase the minimum level of coverage specified by the government.  That minimum benefits package would be more expensive than the coverage chosen by most people in the individual market.  Their premiums would rise because ObamaCare would take away their right to choose a more economical policy.

Note also that the CBO predicts premiums would rise by an average of 10-13 percent in the individual market.  Consumers who currently purchase the most economic policies would see larger premium increases.

Finally, the Obama plan would also force millions of uninsured Americans to purchase health insurance at premiums higher than current-law premium levels, which they have already rejected as being too high.  Their premium expenditures would rise from $0 to thousands of dollars.  Yet the CBO counts that implicit tax as reducing average premiums, because those consumers are generally healthier-than-average.  Only in Washington is a tax counted as a savings.

AP: Obama Misleads Voters about ObamaCare’s Effects on Premiums is a post from Cato @ Liberty - Cato Institute Blog

The apparent drug gang killings of U.S. consular employees this weekend in Juarez, Mexico are a bloody reminder that President Obama is getting the United States involved in yet another war it cannot win. Drug gang killings also occurred in Acapulco, with a total of 50 such fatalities nationwide over the weekend.

Unfortunately, Obama has responded to the latest incident by following the same failed strategy as his predecessors when confronted with drug war losses: a stronger fight against drugs.

Though the deaths are the first in which Mexican drug cartels appear to have so brazenly targeted and killed individuals linked to the U.S. government, illicit drug trade violence has killed some 18,000 people in Mexico since President Calderon came to power in December 2006—more than three times the number of American military personnel deaths in the Iraq and Afghanistan wars combined.

The carnage only shot up after Calderon declared an all-out war on drug trafficking upon taking office. After more than three years, the policy has failed to reduce drug trafficking or production, but it is weakening the institutions of Mexican democracy and civil society through corruption and bloodshed, which are the predictable products of prohibition.

The 29 people killed in drug-related violence this weekend in a 24 hour period in the state of Guerrero sets a dubious record for a Mexican state. And an increasing number of Mexicans, including former Mexican Foreign Minister Jorge Castañeda, are calling for a thorough rethinking of anti-drug policy in Mexico and the United States that includes legalization. Legalization would significantly reduce drug cartel revenue and put an end to an enormous black market and the social pathologies that it creates.

Drug Violence in Mexico is a post from Cato @ Liberty - Cato Institute Blog

The President has announced a government crackdown on Medicare and Medicaid fraud. The effort appears to be an attempt to make it easier for Americans to swallow the health care “reform” he’s trying to shove down their throats. As House Republican leader John Boehner correctly asked, “Why can’t we crack down on fraud without a big-government takeover of health care?”

As I’ve noted before, improper payments made by Medicare and Medicaid is may well be $50 billion more than the already appalling $100 billion annual figure the president cited. Administrative efforts to rein in fraud and abuse are welcome, but they won’t solve the huge and fundamental inefficiencies of these programs. Because the law requires government health care programs to quickly get payments out the door, Uncle Sam will always be engaged in a costly game of “pay and chase.”

The broader problem is that government programs aren’t subject to market discipline. Policymakers and administrators have little incentive to be frugal because they face few or no negative consequences when playing with other people’s money.

Most of us have noticed how good private companies can be at reducing fraud. I recently received a call about questionable charges on my Discover credit card. After quizzing me on a list of purchases made with my card in the past 24 hours, it became clear that someone had gotten control of my account. Discover immediately closed the account, opened an investigation, and removed me from any liability for the fraudulent charges.

What amazed me is that I only had about $300 worth of charges on my card. It’s not a big account and thus not a big money maker for Discover. Yet, within 24 hours of a string of suspicious charges, the company was right on top of it before I even realized anything nefarious was going on. Private markets don’t always work this well, but government programs almost never do.

A Tale of Two Frauds is a post from Cato @ Liberty - Cato Institute Blog

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

2. As federal spending rises, it creates pressure to raise taxes now and in the future. Higher taxes reduce incentives for productive activities such as working, saving, investing, and starting businesses. Higher taxes also increase incentives to engage in unproductive activities such as tax avoidance.

3. Much federal spending is wasteful and many federal programs are mismanaged. Cost overruns, fraud and abuse, and other bureaucratic failures are endemic in many agencies. It’s true that failures also occur in the private sector, but they are weeded out by competition, bankruptcy, and other market forces. We need to similarly weed out government failures.

4. Federal programs often benefit special interest groups while harming the broader interests of the general public. How is that possible in a democracy? The answer is that logrolling or horse-trading in Congress allows programs to be enacted even though they are only favored by minorities of legislators and voters. One solution is to impose a legal or constitutional cap on the overall federal budget to force politicians to make spending trade-offs.

5. Many federal programs cause active damage to society, in addition to the damage caused by the higher taxes needed to fund them. Programs usually distort markets and they sometimes cause social and environmental damage. Some examples are housing subsidies that helped to cause the financial crises, welfare programs that have created dependency, and farm subsidies that have harmed the environment.

6. The expansion of the federal government in recent decades runs counter to the American tradition of federalism. Federal functions should be “few and defined” in James Madison’s words, with most government activities left to the states. The explosion in federal aid to the states since the 1960s has strangled diversity and innovation in state governments because aid has been accompanied by a mass of one-size-fits-all regulations.

For more, see DownsizingGovernment.org.

Six Reasons to Downsize the Federal Government is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post offers an instructive campaign finance story this morning. The essence of the story: employees of banks and brokerage houses contributed more to candidate Barack Obama in 2008 than to his rival John McCain. A lot more in fact: such employees gave almost twice as much to the current president at they did to the Arizona senator.

Now, however, President Obama is attacking the banks and Wall Street for greed and selfishness, not to mention for ruining the economy. Moreover, Obama is proposing curbs on Wall Street pay and heavy regulation of banks. It would appear, in other words, that contributions don’t buy many favors with this administration.

But the story goes deeper. Wall Street is now shifting its contributions to the GOP.  That’s not surprising. In fact, being an intelligent man, President Obama must have known his attacks on Wall Street might deprive his party of contributions. Yet, he went forward with the attacks and proposed laws.

Why? In the coming election, contributions will matter a lot less than votes. Obama thinks his attacks on Wall Street will cast the Democrats as the party of “us” against the detested “them.” The votes gained will greatly outweigh the donations lost. The currency of politics is votes in the market for election.

The next time someone tells you that donations are “legalized bribery,” ask them why Obama took $18 million from Wall Street and gave them in return endless abuse and hostile legislation.

Quid pro quo, indeed.

A Campaign Finance Lesson is a post from Cato @ Liberty - Cato Institute Blog