An argument often heard for keeping Fannie Mae and Freddie Mac, or some sort of subsidy for mortgages, is the desire to keep the 30 year fixed rate mortgage “affordable.” The 30 year fixed certainly has some merits — which borrowers should be willing to pay for — but it also has the downside of reducing the impact of monetary policy in stabilizing the economy.

Generally interest rates go down in a recession and up in an expansion. Part of this is the reaction of the Federal Reserve, which tends to cut rates in a recession, but part is also the fact that the demand for credit also declines in a recession and increases in an expansion.

If borrowers moved to adjustable rate mortgages, then in recessions they would likely see a reduction in their mortgage rate, resulting in a reduction in their monthly payment, which would increase their disposable income, which itself should have some positive impact on consumption, helping to stabilize a weak economy.

The reverse would work in an expansion. If the economy became over-heated, interest rates would likely go up, pushing up monthly payments, resulting in reductions in income and consumption. While of course this would be unpleasant for the borrower, it would have the benefit of moderating a booming economy, reducing the likelihood of inflation and the occurrence of bubbles.

The latter effect would also increase the degree to which consumers care about inflation and demand price stability from the central bank. Normally, borrowers have an incentive to favor inflation, as it reduces the real value of their debt. If however, inflation resulted in an increase in their mortgage rate, their preference could switch toward price stability, which would in the long run be better for growth and the overall economy.

While I do not expect the above to settle the debate over the role of the 30 year fixed rate mortgage, we, as a society, should openly and loudly debate its costs and benefits before we simply assume it needs to be subsidized.

While I’m glad Republicans are finally talking about smaller government, I’ve expressed some disappointment with the GOP Pledge to America. Why “reform” Fannie and Freddie, I asked, when the right approach is to get the government completely out of the housing sector. Jacob Sullum of Reason is similarly underwhelmed. He writes:

In the “Pledge to America” they unveiled last week, House Republicans promise they will “launch a sustained effort to stem the relentless growth in government that has occurred over the past decade.” Who better for the job than the folks who ran the government for most of that time? …Republicans, you may recall, had a spending spree of their own during George W. Bush’s recently concluded administration, when both discretionary and total spending doubled — nearly 10 times the growth seen during Bill Clinton’s two terms. In fact, says Veronique de Rugy, a senior research fellow at George Mason University’s Mercatus Center, “President Bush increased government spending more than any of the six presidents preceding him, including LBJ.” Republicans controlled the House of Representatives for six of Bush’s eight years.

Redemption is a good thing, however, so maybe the GOP actually intends to do the right thing this time around. One key test is whether Republicans do a top-to-bottom housecleaning at both the Congressional Budget Office and the Joint Committee on Taxation.

These Capitol Hill bureaucracies are not well known, but they have enormous authority and influence. As the official scorekeepers of spending (CBO) and tax (JCT) bills, these two bureaucracies can mortally wound legislation or grease the skids for quick passage.

Unfortunately, that clout gets used to dramatically tilt the playing field in favor of bigger government. It was CBO that claimed that Obama’s stimulus created jobs, even though the head of CBO was forced to admit that the jobs-created number was the result of a Keynesian model that was rigged to show exactly that result . You would think that would shame the bureaucrats into producing honest numbers, but CBO continues to produce absurd job creation estimates regardless of the actual rate of unemployment.

CBO favors deficits and debt when it is asked to analyze proposals for more spending, but it rather conveniently changes its tune when the discussion shifts to tax increases. Since we’re on the topic of twisted economic analysis, CBO actually relies on a model which, for all intents and purposes, predicts that economic performance is maximized with 100 percent tax rates.

The Joint Committee on Taxation, meanwhile, is infamous for its assumption that taxes have no impact — at all — on economic output. In other words, instead of showing a Laffer Curve, JCT would show a straight line, with tax revenues continuing to rapidly climb even as tax rates approach 100 percent. This creates a huge bias against good tax policy, yet JCT is impervious to evidence that its approach is wildly flawed.

And don’t forget that CBO and JCT both bear responsibility for Obamacare since they cranked out preposterous estimates that a giant new entitlement would lead to lower budget deficits.

Not that we need additional evidence, but the head of the CBO just repeated his higher-taxes-equal-more-growth nonsense in testimony to the Senate Budget Committee. With this type of mindset, is it any surprise that fiscal policy is such a mess?

Douglas Elmendorf said extending breaks due to expire at year’s end would increase demand in the next few years by putting more money in consumers’ pockets. Over the long term, he said, the tax cuts would hurt the economy because the government would have to borrow so much money to finance them that it would begin competing with private companies seeking loans. That, in turn, would drive up interest rates, Elmendorf said.

I’ve already written once about how the GOP sabotaged itself when it didn’t fix the problems with these scorekeeping bureaucracies after 1994. If Republicans take power and don’t raze CBO and JCT, they will deserve to become a permanent minority party.

No, seriously. First Lady Michelle Obama is asking nurses to promote ObamaCare to their patients.

With hundreds of thousands of medical errors occurring each year — a problem that ObamaCare does nothing to address — this is exactly what I want my nurse thinking about as she’s inserting a needle into my arm.

It’s been a tough week for the Department of Health and Human Services. As I discussed earlier, the Government Accountability Office reported on fraud problems with the Child Care and Development Fund program. Another new report from the GAO finds fraud problems with HHS’s Head Start program.

GAO investigators attempted to register children from fictitious families in Head Start programs in six states and the District of Columbia. The GAO created 13 fictitious families that earned too much income or possessed other characteristics that would disqualify the children from participating in Head Start. The result is embarrassing:

In 8 out of 13 eligibility tests, our families were told they were eligible for the program and instructed to attend class. In all 8 of these cases, Head Start employees actively encouraged our fictitious families to misrepresent their eligibility for the program. In at least 4 cases, documents we later retrieved from these centers show that our applications were doctored to exclude income information for which we provided documentation, which would have shown the family to be over-income. Employees at seven centers knowingly disregarded part of our families’ income to help make over-income families and their children appear to actually be under-income. This would have had the effect of filling slots reserved for under-income children with over-income children. At two centers, staff indicated on application forms that one parent was unemployed, even though we provided documentation of the parents’ income. A Head Start employee at one center even assured us that no one would verify that the income information submitted was accurate.

The GAO finding is not surprising given that previous reports show that HHS does a poor job administering the program.

In 2000, the GAO found that 76 percent of Head Start grantees reviewed were not in compliance with financial management standards. In a subsequent review, more than half remained out of compliance. In 2005, the GAO reported that HHS still couldn’t adequately identify financial management weaknesses of Head Start grantees. In 2008, the GAO reported that HHS still had not undertaken a comprehensive assessment of Head Start’s risks, and said that it had made “little progress” in ensuring that the data it collects from grantees are reliable.

But as a Cato essay on Head Start explains, the program’s biggest problem is that it isn’t effective in helping children from low-income families succeed later in life:

In 2010, HHS released a long-anticipated study of Head Start’s effectiveness, which is the most rigorous analysis to date. The program is supposed to give disadvantaged children a “head start” in life. However, the study found almost no advantages to children in kindergarten and grade one from having gone through Head Start, compared to children who had not.

Of the 112 measurements in the new HHS study—which covered areas such as academics, socio-emotional development, and health—only a handful showed any statistically significant benefit to participants of Head Start. In addition, most measured benefits disappeared once more rigorous statistical methods were applied. In other words, there was virtually no benefit to children of having attended Head Start.

After 45 years and $166 billion in spending, it’s apparent that this Great Society relic isn’t the best way to help disadvantaged children.

Opponents of federal welfare programs are often accused of being unconcerned about the needs of the poor. However, the burden of proof should be on the advocates who claim that federal bureaucracies and concomitant subsidies are the best option for assisting the less fortunate. Head Start, and other smoldering embers from the Great Society’s “War on Poverty,” continues to show otherwise.

In a previous post, I promised to address the negative spin that the Kaiser Family Foundation put on its annual Employer Health Benefits Survey, released this month. I do so in an op-ed that ran today at the Daily Caller. An excerpt:

The Kaiser Family Foundation recently issued its annual survey of employer-sponsored health benefits, declaring: “Family Health Premiums Rise 3 Percent to $13,770 in 2010, But Workers’ Share Jumps 14 Percent as Firms Shift Cost Burden.” That’s half-right — but the other half perpetuates a myth about employee health benefits that stands in the way of real health care reform.…

[Y]ou pay the full cost of your health benefits: partly through an explicit $4,000 premium and partly because your wages are $9,770 lower than they otherwise would be.

Kaiser therefore claims the impossible when it says that firms are shifting costs to workers. Employers cannot shift to workers a cost that workers already bear. Yet this year, as in past years, the Associated Press, Bloomberg, CNN, Kaiser Health News, The Los Angeles Times, The New York Times, NPR, The Wall Street Journal, and The Washington Post uncritically repeated the cost-shifting myth.

The bolded sentence is Cannon’s Second Rule of Economic Literacy. (Click here for the first rule.)

I have also collected a series of excerpts from past Kaiser Family Foundation surveys showing this is a persistent issue. Here are a few:

1998: “Workers in small firms bear a much larger share of the financial burden for health benefits than employees of larger firms.”

2005: “The average worker paid $2,713 toward premiums for family coverage in 2005 or 26% of the total health premium.”

2007: “Annual Premiums for Family Coverage Now Average $12,106, With Workers Paying $3,281”

The folks at the Kaiser Family Foundation were exceedingly gracious when I approached them to discuss this issue.

This week, Secretary of Homeland Security Janet Napolitano is pressing countries around the world to use “strip-search machines,” low-power x‑ray and radio wave scanning devices that reveal what is underneath travelers’ clothes. The machines provide a small margin of security at a high risk to privacy.

And those privacy risks are manifesting themselves overseas. On AllAfrica​.com, news service This Day reports on how strip-search machines have been used to peep at travelers as nudes in Lagos, Nigeria:

[D]uring off-peak periods, the aviation security officials, who are trained on the use of the scanners, usually stroll from the cubicle located in a hidden corner on the right side of the screening area where the 3D full-body scanner monitors are located. They do so to catch a glimpse of some of the passengers entering the machine and immediately go back to view the naked images, in order to match the faces with the images since the faces are blurred on the monitors while passengers are inside the machine.

The report notes that one of the “conventional scanners”—a magnetometer, most likely—was put out of service to corral people into the strip-search machine.

Italy has abandoned strip-search machines after a six-month test, due both to privacy issues and “because they are slow.” This is the sleeper issue that may soon wake as more machines show up in our airports: Strip-search machines take a very long time compared to magnetometers.

There are more than half a billion enplanements in the United States each year. If each traveler is delayed by 10 seconds, strip-search machines would waste nearly 1.4 million hours of Americans’ time directly—much more if you include the schedule-padding that all fliers would have to practice to avert strip-search machine delays.

The margin of security provided by these machines is small. In an interview on Fox’s local affiliate in D.C. last night, I said, “If we go down the strip-search machine route, there’s going to be more methods of concealment, and we certainly don’t want the TSA looking there.”

Hopefully, my poor grammar distracts you from the full import of that line.

If you blinked, you missed it. Heaven knows, I did. The OECD privacy guidelines celebrated their 30th birthday on Thursday last week. They were introduced as a Recommendation by the Council of the Organization for Economic Cooperation and Development on September 23, 1980, and were meant to harmonize global privacy regulation.

Should we fete the guidelines on their birthday, crediting how they have solved our privacy problems? Not so much. When they came out, people felt insecure about their privacy, and demand for national privacy legislation was rising, risking the creation of tensions among national privacy regimes. Today, people feel insecure about their privacy, and demand for national privacy legislation is rising, risking the creation of tensions among national privacy regimes. Which is to say, not much has been solved.

In 2002—and I’m still at this? Kill me now—I summarized the OECD Guidelines and critiqued them as follows on the “OECD Guidelines” Privacilla page.

The Guidelines, and the concept of “fair information practices” generally, fail to address privacy coherently and completely because they do not recognize a rather fundamental premise: the vast difference in rights, powers, and incentives between governments and the private sector. Governments have heavy incentives to use and sometimes misuse information. They may appropriately be controlled by “fair information practices.”

Private sector entities tend to have a balance of incentives, and they are subject to both legal and market-punishments when they misuse information. Saddling them with additional, top-down regulation in the form of “fair information practices” would raise the cost of goods and services to consumers without materially improving their privacy.

Not much has changed in my thinking, though today I would be more careful to emphasize that many FIPs are good practices. It’s just that they are good in some circumstances and not in others, some FIPs are in tension with other FIPs, and so on.

The OECD Guidelines and the many versions of FIPs are a sort of privacy bible to many people. But nobody actually lives by the book, and we wouldn’t want them to. Happy birthday anyway, OECD guidelines.