Something smells fishy here.

Today, the federal agency that runs Medicare and Medicaid released its estimates of national health expenditures in 2009. Interestingly, the U.S. Centers for Medicare & Medicaid Services re-categorized about 6 percent of national health expenditures — well over $100 billion — from “government” to “private,” at the very moment that the government share of NHE appeared set to hit 50 percent.

Last year, CMS projected that government health spending would “account for more than half of all U.S. health care spending by 2012.” But it looks like we were set to reach (have reached?) that milestone much sooner. See the below table, which I made using CMS’s estimates from 2008 and Exhibit 5 (p. 16) from today’s report.

Turns out, it was the private sector spending that $100 billion each year, not the government. Who knew?

This 6‑percentage-point drop in government’s share of health spending was apparently due to “the renaming of some service and payer categories.” A footnote leads to a page on the CMS site that isn’t active yet, so we can’t see what was recategorized from government to private spending.

Exhibit 5 of today’s report also reveals that total health care spending grew by 4 percent in 2009, while government health spending grew by 9.9 percent and private spending shrank by 0.2 percent. Indeed, today’s report contains this money quote:

Federal health spending increased 17.9 percent between 2008 and 2009 .… In contrast, the shares of spending of households… private businesses… and state and local governments… fell by roughly one percentage point each between 2008 and 2009.

I can’t say for sure that there’s something fishy going on here. But this re-categorization comes at an awfully convenient time for an administration struggling with public dissatisfaction over its, ahem, government takeover of health care. My spidey sense is tingling.

While others wish the new Congress well today on its swearing-in, I plan to light a 100-watt incandescent bulb and hoist a caffeinated alcoholic beverage in honor of a different milestone: starting today, the powerful House Energy and Commerce Committee will no longer be under the control of Henry Waxman (D‑Calif.).

Some lawmakers can talk a decent game about lean ‘n’ smart regulation, but no one ever accused Waxman of having a light touch. (The 900-page Waxman-Markey environmental bill, mercifully killed by the Senate, included provisions letting Washington rewrite local building codes.) He’s known for aggressive micromanagement even of agencies run by putative allies: his staff has repeatedly twisted the ears of Obamanaut appointees to complain that their approach to regulation is too moderate and gradual. More than any other lawmaker on the Hill, he’s stood in the way of any meaningful reform of the 2008 CPSIA law, which piles impractical burdens on small makers of children’s products, thrift stores, bicycles and others.

Like his predecessor, Rep. John Dingell (D‑Mich.), Waxman and his subcommittee chairs have famously used hearings as a club to discipline interest groups that don’t cooperate. Last spring he menaced large employers with hearings after several of them announced (contrary to some predictions) that ObamaCare was going to hurt their bottom lines. In September, subcommittee chair Rep. Anthony Weiner (D‑N.Y.) announced hearings on regulating precious-metal companies, in a remarkable press release that devoted much attention to the firms’ role in sponsoring “several conservative pundits … including Glenn Beck, Mike Huckabee, Laura Ingraham, and Fred Thompson. By drumming up public fears during financially uncertain times, conservative pundits are able to drive a false narrative,” the release said. In other words, the committee was investigating private firms in part because it disapproved of their advertising on, and reinforcing the economic message of, conservative talk shows. Didn’t anyone on Weiner’s staff have a sudden overhead flash about the whole “First Amendment” idea? Or had that particular light bulb been banned too?

The committee was an unending source of ghastly new legislative proposals for regulatory manacles to be fastened on one or another sector of the economy , ideas that with any luck we may now be spared for the next two years. Thus it appears unlikely that the Republican-led committee will give its blessing to something called the Safe Cosmetics Act of 2010 (H.R. 5786), introduced by Reps. Ed Markey (D‑Mass.), Jan Schakowsky (D‑Ill.), and Tammy Baldwin (D‑Wisc.), which — by mandating that all compounds found in personal-care items at any detectable level be expensively tested for and disclosed on labels — could have added tens of thousands of dollars of cost overhead to that little herbal-soap business your sister is trying to start in her garage. (Fragrance expert Robert Tisserand explains why most small personal-care product makers would not survive if the bill passed). Nor is it likely that the new leadership of chairman Fred Upton (R‑Mich.) will be in a hurry to adopt Rep. Schakowsky’s H.R. 1408, the Inclusive Home Design Act, which would mandate handicap accessibility features in most new private homes.

I look forward to learning more about the plans of Rep. Upton and his new majority colleagues. For today, however, it’s enough just to know that they are Not Henry Waxman.

The New York Times’ “Room for Debate” website is once again hosting a forum on education, to which I have contributed some thoughts. The topic: whether there should be federal tax credits for home schoolers.

I won’t rehash my contribution — obviously, you can read it right on the site — but I wanted to respond quickly to two other entries.

The first is from Chester Finn, president of our favorite conservative sparring partner in education, the Thomas B. Fordham Instititute. I just want to thank him for substantiating a warning I offer in my contribution: Create federal home-schooling credits and don’t be surprised if you also get requirements that home schoolers be judged on stultifying standardized tests. It’s exactly what Finn calls for:

In return for the financial help, however, home-schooled students should be required to take state tests, just as they would do in regular school, charter school or virtual schools. And if they don’t pass those tests, either the subsidy vanishes or the kids must enroll in some sort of school with a decent academic track record.

The second person I want to respond to is former Bush II official Susan Neuman, who generally offers the right advice by warning even more starkly than I did that home schoolers demanding tax credits are making a deal with the regulatory devil. That’s fine, as is her reporting that by what indications we have “children who have been home-schooled do remarkably well, attending well-respected colleges and universities and going on to successful careers.” Unfortunately, all that was preceded by the Reductio ad Hitlerum of education debates: Smearing any effort to even the playing field between public schools and other educational arrangements as an “attempt … to destroy public education.”

I know that this will never catch on with people determined to preserve public schools’ near-monopoly on tax dollars no matter how well other arrangements actually educate children (not to mention serve taxpayers and society overall), but it is time to stop treating public education as if it is synonymous with public schools! Indeed, you demonstrate more dedication to public education if you fight to get kids access to the best education wherever it is offered than if you make your ultimate goal preserving government schools. Yet the monopoly defenders insist on smearing choice advocates as being at war with public education.

Stop with this trashy tactic. Wanna say supporters of educational choice are at war with public schools? Fine. But with public education? Sorry — if anything, they’re the ones truly fighting to get the best possible education for all.

The news is going from bad to worse for Ireland. The Irish Independent is reporting that the Swiss Central Bank no longer will accept Irish government bonds as collateral. The story also notes that one of the world’s largest bond firms, PIMCO, is no longer purchasing debt issued by the Irish government.

And this is happening even though (or perhaps because?) Ireland received a big bailout from the European Union and the International Monetary Fund (and the IMF’s involvement means American taxpayers are picking up part of the tab).

I’ve already commented on Ireland’s woes, and opined about similar problems afflicting the rest of Europe, but the continuing deterioration of the Emerald Isle deserves further analysis so that American policy makers hopefully grasp the right lessons. Here are five things we should learn from the mess in Ireland.

1. Bailouts Don’t Work — When Ireland’s government rescued depositors by bailing out the nation’s three big banks, they made a big mistake by also bailing out creditors such as bondholders. This dramatically increased the cost of the bank bailout and exacerbated moral hazard since investors are more willing to make inefficient and risky choices if they think governments will cover their losses. And because it required the government to incur a lot of additional debt, it also had the effect of destabilizing the nation’s finances, which then resulted in a second mistake — the bailout of Ireland by the European Union and IMF (a classic case of Mitchell’s Law, which occurs when one bad government policy leads to another bad government policy).

American policy makers already have implemented one of the two mistakes mentioned above. The TARP bailout went way beyond protecting depositors and instead gave unnecessary handouts to wealthy and sophisticated companies, executives, and investors. But something good may happen if we learn from the second mistake. Greedy politicians from states such as California and Illinois would welcome a bailout from Uncle Sam, but this would be just as misguided as the EU/IMF bailout of Ireland. The Obama Administration already provided an indirect short-run bailout as part of the so-called stimulus legislation, and this encouraged states to dig themselves deeper in a fiscal hole. Uncle Sam shouldn’t be subsidizing bad policy at the state level, and the mess in Europe is a powerful argument that this counter-productive approach should be stopped as soon as possible.

By the way, it’s worth noting that politicians and international bureaucracies behave as if government defaults would have catastrophic consequences, but Kevin Hassett of the American Enterprise Institute explains that there have been more than 200 sovereign defaults in the past 200 years and we somehow avoided Armageddon.

2. Excessive Government Spending Is a Path to Fiscal Ruin — The bailout of the banks obviously played a big role in causing Ireland’s fiscal collapse, but the government probably could have weathered that storm if politicians in Dublin hadn’t engaged in a 20-year spending spree.

The red line in the chart shows the explosive growth of government spending. Irish politicians got away with this behavior for a long time. Indeed, government spending as a share of GDP (the blue line) actually fell during the 1990s because the private sector was growing even faster than the public sector. This bit of good news (at least relatively speaking) stopped about 10 years ago. Politicians began to increase government spending at roughly the same rate as the private sector was expanding. While this was misguided, tax revenues were booming (in part because of genuine growth and in part because of the bubble) and it seemed like bigger government was a free lunch.

Eventually, however, the house of cards collapsed. Revenues dried up and the banks failed, but because the politicians had spent so much during the good times, there was no reserve during the bad times.

American politicians are repeating these mistakes. Spending has skyrocketed during the Bush-Obama year. We also had our version of a financial system bailout, though fortunately not as large as Ireland’s when measured as a share of economic output, so our crisis is likely to occur when the baby boom generation has retired and the time comes to make good on the empty promises to fund Social Security, Medicare, and Medicaid.

3. Low Corporate Tax Rates Are Good, but They Don’t Guarantee Economic Success if other Policies Are Bad — Ireland used to be a success story. They went from being the “Sick Man of Europe” in the early 1980s to being the “Celtic Tiger” earlier this century in large part because policy makers dramatically reformed fiscal policy. Government spending was capped in the late 1980 and tax rates were reduced during the 1990s. The reform of the corporate income tax was especially dramatic. Irish lawmakers reduced the tax rate from 50 percent all the way down to 12.5 percent.

This policy was enormously successful in attracting new investment, and Ireland’s government actually wound up collecting more corporate tax revenue at the lower rate. This was remarkable since it is only in very rare cases that the Laffer Curve means a tax cut generates more revenue for government (in the vast majority of cases, the Laffer Curve simply means that changes in taxable income will have revenue effects that offset only a portion of the revenue effects caused by the change in tax rates).

Unfortunately, good corporate tax policy does not guarantee good economic performance if the government is making a lot of mistakes in other areas. This is an apt description of what happened to Ireland. The silver lining to this sad story is that Irish politicians have resisted pressure from France and Germany and are keeping the corporate tax rate at 12.5 percent. The lesson for American policy makers, of course, is that low corporate tax rates are a very good idea, but don’t assume they protect the economy from other policy mistakes.

4. Artificially Low Interest Rates Encourage Bubbles — No discussion of Ireland’s economic problems would be complete without looking at the decision to join the common European currency. Adopting the euro had some advantages, such as not having to worry about changing money when traveling to many other European nations. But being part of Europe’s monetary union also meant that Ireland did not have flexible interest rates.

Normally, an economic boom drives up interest rates because the plethora of profitable opportunities leads investors demand more credit. But Ireland’s interest rates, for all intents and purposes, were governed by what was happening elsewhere in Europe, where growth was generally anemic. The resulting artificially low interest rates in Ireland helped cause a bubble, much as artificially low interest rates in America last decade led to a bubble.

But if America already had a bubble, what lesson can we learn from Ireland? The simple answer is that we should learn to avoid making the same mistake over and over again. Easy money is a recipe for inflation and/​or bubbles. Simply stated, excess money has to go someplace and the long-run results are never pleasant. Yet Ben Bernanke and the Federal Reserve have launched QE2, a policy explicitly designed to lower interest rates in hopes of artificially juicing the economy.

5. Housing Subsidies Reduce Prosperity — Last but not least, Ireland’s bubble was worsened in part because politicians created an extensive system of preferences that tilted the playing field in the direction of real estate. The combination of these subsidies and the artificially low interest rates caused widespread malinvestment and Ireland is paying the price today.

Since we just endured a financial crisis caused in large part by a corrupt system of housing subsidies for Fannie Mae and Freddie Mac, American policy makers should have learned this lesson already. But as Thomas Sowell sagely observes, politicians are still fixated on somehow re-inflating the housing bubble. The lesson they should have learned is that markets should determine value, not politics.

Yet another front has opened in the battle over illegal immigration, this one involving birthright citizenship. According to today’s New York Times and other news outlets, Republicans at the state and federal level are gearing up to re-open the question of whether children born in the United States to parents who are here illegally should be granted automatic citizenship under the 14th Amendment to the U.S. Constitution.

James Ho makes a strong case in this morning’s Wall Street Journal that the 14th Amendment as written after the Civil War was intended to include the children of resident aliens whatever their legal status. The former solicitor general of Texas, Ho describes a series of Supreme Court decisions since then that have consistently upheld the principle that birthright citizenship applies to the children of illegal immigrants. He offers this sobering advice to those who want to retest the case in court:

Opponents of birthright citizenship say that they want nothing more than a chance to relitigate the meaning of the 14th Amendment. But if that is so, state legislation is a poor strategy.

Determining U.S. citizenship is the unique province of the federal government. It does not take a constitutional expert to appreciate that we cannot have 50 different state laws governing who is a U.S. citizen. As a result, courts may very well strike down these state laws without even invoking the 14th Amendment. The entire enterprise appears doomed to failure.

At a Cato Hill Briefing event in October, I spelled out additional reasons why the principle of birthright citizenship has served our nation well since the Civil War amendments. Attorney Margaret Stock reviews the legal and constitutional arguments underpinning birthright citizenship, while I examine the practical policy arguments for not tampering with the established interpretation. (My segment starts at the 25:11 mark.)

After proponents of the Federal Reserve’s second round of quantitative easing (QE2) abandoned the argument that QE2 would spur growth by bringing down interest rates (only after rates increased), the new defense became “we intended for rates to go up all along, as a result of increased inflation expectations.” Since few would argue for increased inflation, or expectations of such, as an end in itself, the claim was that increases in inflation expectations would drive households to consume more, which would in turn causes businesses to hire more, bringing down the unemployment rate. But does this chain of reasoning withstand empirical scrutiny?

It turns out looking at the historical data on inflation expectations, as collected at the University of Michigan, that inflation expectations and household savings rates (the inverse of consumption rates) are positively correlated. Now of course correlation doesn’t mean causality,but what the data suggest is that instead of consuming more when inflation expectations increase, households have actually saved more. This positive correlation also holds for the second half of the data series, so it’s not simply the result of a downward trend in either inflation or savings.

To review, the latest argument for QE2: increase inflation expectations, which is assumed to increase consumption, which is hoped to increase employment. The problem I’ve had all along with this position is that the only thing we know for certain is the first part, QE2 would increase inflation expectations. The hope that it would increase consumption and hence employment was just that: hope. Given the disconnect we’ve seen between consumption and unemployment over the past 18 months, the third link in that chain is also a weak one. So what do we have at the end of the day: certain costs with fairly speculative and uncertain benefits. And here I was thinking that reckless speculation was the sole province of the private sector.

A few responses to my mention yesterday of the new House rule requiring each introduced bill to cite a specific constitutional provision for Congress’s authority to pass it asked me to elaborate on what this would mean in practice. Well, this is apparently a new thing so nobody knows exactly, but the Republican leadership has provided a fascinating memo providing guidance to all (not just GOP) lawmakers.

First of all, the Constitution has to be cited “as specifically as practicable.” For example: “The constitutional authority on which this bill rests is the power of Congress to make rules for the government and regulation of the land and naval forces, as enumerated in Article I, Section 8, Clause 14 of the United States Constitution.” That’s pretty good and specific. 

But try this one: “The Congress enacts this bill pursuant to Clause 1 of Section 8 of Article I of the United States Constitution and Amendment XVI of the United States Constitution.” It looks specific — lots of numbers — but the first clause of Article I, Section 8 is a biggie: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.” So let’s say you have a tax bill: do you just cite that? Well, that shouldn’t be enough because, as we’ve learned with the Obamacare litigation, even if something is a tax — highly questionable in the individual mandate context — it needs to be attached to an enumerated power because the general welfare is not infinitely elastic (instead limiting Congress’s exercise of its enumerated powers to ends that are truly for the national – as opposed to particular, or local – good).

And we haven’t even gotten to the Fourteenth Amendment, about whose meaning several libraries of books, law review articles, and judicial opinions have been written.

Luckily, the memo provides a list of resources members can consult, including the Federalist Papers, the online Founders’ Constitution, and the following list of “think-tanks and associations”: Brookings, Cato, the Federalist Society, and the American Constitution Society (and Heritage is mentioned earlier in the document, particularly its excellent Heritage Guide to the Constitution, which contains entries by several Cato-affiliated folks).

So, yeah, congressional staff, if you have any questions, feel free to drop me a line for the true meaning of the Tonnage Clause (ok, maybe not that one, but I’m pretty good with, for example, the Commerce Clause and Priviliges or Immunities Clause).

Which raises another question, even if the would-be bill sponsor meets the “specificity” requirement: Who gets to determine whether the cited provision indeed provides the authority claimed? On what standard? Well: “The adequacy and accuracy of the citation of constitutional authority is matter for debate in the committee and in the House.”

That sounds great: Congress will actually be debating whether it has the authority to do something! Kickin’ it 19th-century style! The Congressional Record might now be as interesting reading as the transcripts of Supreme Court arguments, but more so because the debates there will almost certainly be less abstruse and designed to appeal to (and satisfy) constituents.

Finally, the memo has a relatively long FAQ section, including my personal favorite:

Q. Isn’t it the courts’ duty to determine whether a law is constitutional and thus doesn’t this rule infringe on the power of the courts?

A. No. While the courts have the power to overturn an Act of Congress on the basis that it is unconstitutional, Members of Congress have a responsibility, as clearly indicated by the oath of office each Members takes, to adhere to the Constitution.

Yes! Congressmen and senators (and the president) take an oath to “support and defend the Constitution” so they are derelict in their duty if they don’t consider a proposed bill’s constitutionality — in contradistinction to Nancy Pelosi’s “are you serious?” position and George W. Bush’s “let the Supremes sort it out” view (with respect to the McCain-Feingold campaign finance law, for example). This may be one of the few things on which I agree with former Delaware senatorial candidate Christine O’Donnell (who now faces allegations of having violated campaign finance rules, but perhaps that’s just, um, a witch-hunt).

As for what role these new constitutional citations will play in any future litigation, well, jurists use legislative history in various ways — some, like Justice Scalia, not at all — and this would become one more piece of evidence elucidating congressional intent or justification (which, as we also know from the Obamacare lawsuits, courts are powerless to look behind to, for example, transform a regulation into a tax). Ultimately, of course, Congress’s final vote on the proposed bill will incorporate each member’s constitutional judgment. But courts won’t uphold a law just because Congress thinks it’s kosher.

So why have the rule at all? 

A. Just as a cost estimate from the Congressional Budget Office informs the debate on a proposed bill, a statement outlining the power under the Constitution that Congress has to enact a proposed bill will inform and provide the basis for debate. It also demonstrates to the American people that we in Congress understand that we have an obligation under our founding document to stay within the role established therein for the legislative branch.

Sounds good — great, actually — to me. But the proof will be in the pudding of how and what the 112th Congress legislates.

H/T: Josh Blackman