Chinese President Hu Jintao’s visit to Washington brought renewed focus on China’s currency. It was likely the largest point of discussion between President Obama and President Hu. I suspect a less public, but related, issue was China looking for some certainty that America would make good on its obligations; after all, China is our largest lender.

What is often missed is the connection between these two issues: currency and debt. When China receives dollars for the many goods it sells us, instead of recycling those dollars into the purchase of US goods, it uses that money mostly to buy US Treasuries and Agencies (Fannie/​Freddie securities). These large Treasury/​Agency purchases (foreign holdings of GSE debt are over $1 trillion) have the effect of increasing the demand for dollars and depressing that for yuan, resulting in an appreciation of the dollar relative to the yuan. This connection exposes the hypocrisy of President Obama’s complaints about China currency manipulation — without massive US budget deficits, China would not be able to manipulate its currency to the extent it does. If the US wants to end that manipulation, it can do so by simply reducing the outstanding supply of Treasuries and Agency debt.

Another solution, which would also do much to end the “implicit guarantees” of Fannie Mae and Freddie Mac, is to take Fannie and Freddie into a receivership, stop the US taxpayer from having to cover their losses, and shift those losses to junior creditors, which include the Chinese Central Bank. Were the Chinese to actually suffer credit losses on their GSE debt, they would quickly start to reduce their holdings of such. They might also cut back on Treasury holdings. These actions would force the yuan to appreciate relative to the dollar. And best of all, it would end the bottomless pit that Fannie and Freddie have become. It is worth remembering that even today, under statute, the Federal government does not back the debt of Fannie and Freddie. It is about time we also teach the Chinese a lesson about the rule of law, by actually following it ourselves. 

Of course this would increase the borrowing costs for Agencies (and maybe Treasuries), but then if China were to free float its currency, that would also reduce the demand for Treasuries/​Agencies with a resulting increase in borrowing costs. We cannot have it both ways.

A new report says that traffic congestion is worse, and the American Public Transportation Association urges Congress to … spend more money on public transportation.

Cato senior fellow Randal O’Toole has been challenging the received wisdom on traffic and mass transit for years. See his book Gridlock: Why We’re Stuck in Traffic and What to Do About It, and lots of other studies. In November he debated the head of the American Public Transportation Association at a Cato Policy Forum:

U. of Ark. political scientist and education scholar Jay Greene has been blogging about the proper role of science in education policy, and his thoughts (continued here) are well worth reading. In particular, he warns that trying to scientifically find “the one best way” of evaluating teachers or of teaching reading and then attempting to impose that putatively best solution on all children is ultimately misguided and destructive.

I’d add that it is also unscientific. Science is humble. You have to be willing to rethink and potentially discard theories that repeatedly fail to coincide with reality. Well, the theory that governments can operate effective, efficient, innovative education systems from the top down was never supported by the evidence in the first place, and that theory is now buried beneath a vast pile of contrary findings. The system best supported by the empirical evidence is a parent-driven education marketplace such as the one Greene recommends.

The symbolism of today’s House vote is striking. Within a year of ObamaCare’s enactment, the House of Representatives has voted overwhelmingly to repeal it.

That didn’t happen with Social Security. It didn’t happen with Medicare. Social Security and Medicare did not face sustained public opposition from the moment they were introduced in Congress. They did not pass by one vote, in the dead of night. They were not challenged as unconstitutional by half the states in the union. They were not struck down as unconstitutional by a federal court within a year of enactment.

The House vote to repeal ObamaCare is just the latest sign that ObamaCare goes too far, that it creates a more intrusive government than the American people are willing to accept.

But the House vote is not mere symbolism, as the Obama administration would have us believe. This vote has moved the ball forward on repeal. This and further similar votes in both the House and Senate will reveal where members stand on repealing ObamaCare. Voters may use that information to replace pro-ObamaCare members with people who will vote to repeal ObamaCare in the next Congress. That’s how the political system works.

At the same time, this repeal vote makes it more likely that the Supreme Court will strike down ObamaCare. Like it or not, the Supreme Court follows the election returns. This vote shows the Court that it will not pay a price in the public’s esteem if it overturns ObamaCare.

Today’s vote makes it more likely that someone with the power to scrap ObamaCare will do so — and the Obama administration knows it. Why else would they come out with both guns blazing against a purely “symbolic” act?

When that happens, it will be a good day for America. Real health care reform is impossible while ObamaCare remains on the books.

Jeff Patch and Zac Morgan of the Center for Competitive Politics report on the storm that is brewing at the Federal Election Commission over regulations to implement Citizens United. The three Democratic appointees propose regulations that would impose significant elements of the DISCLOSE Act, a bill that failed to pass Congress last year. The three Republican appointees, in contrast, propose to clarify existing law and clear away defunct regulations, all with an eye toward the holdings in Citizens United. The FEC seems unlikely to adopt the proposals by the Democratic appointees. After all, the Democratic commissioners do not have and are unlikely to obtain majority support for their agenda.

Imagine if the Federal Election Commission were directed by a seven-member board where one party or the other held a working majority. Imagine also the Democrats had a majority on this fictional commission. The regulations proposed by the three current Democratic commissioners would become the law of the land. They would become so despite the fact that Congress itself did not pass the DISCLOSE Act and the regulations contravene the spirit and perhaps the letter of a major Supreme Court decision.

How would that (imagined) outcome be compatible with American constitutional democracy? How would it comport with the rule of law?

Almost half of America’s farmland is operated by someone other than the owner. Critics of farm subsidies often point to examples of famous wealthy landowners receiving handouts as a reason to end the federal government’s agriculture gravy train. Notable recipients have included Ted Turner, Larry Flynt, Charles Schwab, and numerous members of Congress.

While policymakers justify their support for farm subsidies in the name of “protecting farmers,” a new academic study describes how landowners are often the real winners. Farm subsidies get “capitalized” into the price of farm land, pushing up land prices. As a result, those farmers who lease land from landowners at the inflated prices end up having a substantial share of their subsidy benefits effectively canceled out.

From the paper:

In all, the results confirm that government payments exert a significant effect on land values. The (marginal) rates of capitalization suggest that in the current policy context, a dollar in benefits typically raises land values by $13-$30 per acre, with the response differing substantially across different types of policies. This response certainly suggests that agents expect these benefits to be sustained for some time. In terms of the implications for the distribution of farm program benefits, our results confirm that a substantial share of the benefits is captured by landowners.

The authors’ conclude that the rhetoric exhibited by supporters of farm subsidies doesn’t always match the reality:

Policy rhetoric often justifies Farm Bill expenditures with the argument that impoverished farmers are in need of governmental support to remain in business. This view is pervasive outside of Washington. For example, consider the annual “Farm Aid” events intended to draw attention to the plight of the American farmer. Our analysis challenges this view. We demonstrate that land owners capture substantial benefits from agricultural policy. This is particularly problematic given that in many cases land owners are distinct from the farmers whose plight we are told we should be concerned with.

See this Cato essay for more on agriculture subsidies.

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.