The Department of Health and Human Services’ Child Care and Development Fund is a state aid program that subsidizes child care expenses for low-income working families with children. The federal government largely leaves it to the states to provide oversight for the CCDF program, which HHS estimates loses more than 10 percent of its funding in improper payments.

A new report from the Government Accountability Office shows widespread fraud by CCDF recipients in the sampling of states that it investigated:

Our proactive testing revealed that CCDF programs in the 5 states we tested were vulnerable to fraud because states did not adequately verify the information of children, parents, and providers and lacked adequate controls to prevent fraudulent billing. In 7 of 10 cases in four states, our fictitious parents and children were admitted into the CCDF program because states did not verify the personal and employment information provided by the applicants. Three of those states paid $11,702 in childcare subsidies to our fraudulent providers, and two states allowed the providers to over bill for services beyond their approved limit. Only one state successfully prevented our fictitious applicants from being admitted into the program, but officials from that state told us they perform only limited background checks on providers and cannot immediately detect over billing.

The GAO’s findings can be summarized as follows:

• States lack effective controls to verify parent and child information, such as a parent’s income eligibility.
• States do a poor job of checking the backgrounds of providers, which mean subsidized child care could be being provided by sex offenders.
• States have weak controls to prevent fraudulent billing. Nonetheless, the GAO found numerous instances of delays in processing applications.

None of these findings are particularly surprising considering that government bureaucracies have little incentive to make sure funds are appropriately spent. The reason is simple: bureaucracies play with other people’s money and aren’t subject to competitive market forces.

When the government engages in “charitable” activities, it does so with money that it involuntarily obtains from taxpayers. In contrast, those who voluntarily donate to charities have an incentive to make sure their donations are properly used. If a charity does a poor job, donors have the freedom to turn to a different charity.

See this essay for more on the problems with subsidy programs administered by HHS, including the CCDF.

The House is expected to vote today on a bill that would allow U.S. companies to petition the Commerce Department for protective tariffs against imports from countries with “misaligned currencies.” Everybody knows the bill is aimed squarely at China.

Advocates of the legislation say it is about jobs, and they are partly right. The bill is about saving the jobs of incumbent lawmakers who are desperate to appear tough on China trade, which they blame for the loss of U.S. manufacturing jobs.

As my colleague Dan Ikenson and I have argued at length, in blog posts, op-eds, and longer studies,

• A stronger Chinese currency will not put a major dent in our large bilateral trade deficit with China, certainly not any time in the near future.
• The bilateral deficit with China and America’s overall trade deficit is not a drag on growth or a barrier to manufacturing exports and output.
• U.S. manufacturing has not been decimated by trade. In fact it has been expanding as American producers move up the value chain to more sophisticated, high-tech products.
• Provoking a needless trade spat with China will jeopardize the healthy export success American companies have enjoyed in China’s fast-growing market.

Let’s hope cooler, wiser heads in the Senate and the White House save us from this election-season folly.

This week, President Obama called for the hiring of 10,000 new teachers to beef up math and science achievement. Meanwhile, in America, Earth, Sol-System, public school employment has grown 10 times faster than enrollment for 40 years (see chart), while achievement at the end of high school has stagnated in math and declined in science (see other chart).

Either the president is badly misinformed about our education system or he thinks that promising to hire another 10,000 teachers union members is politically advantageous–in which case he would seem to be badly misinformed about the present political climate. Or he lives in an alternate universe in which Kirk and Spock have facial hair and government monopolies are efficient. It’s hard to say.

From my oped in today’s Investors Business Daily:

Rep. Paul Ryan’s (R‑Wis.) “Roadmap for America’s Future” proposes even tighter limits on Medicare’s growth, leading columnist Bruce Bartlett to opine, “the Medicare actuaries have shown the absurdity of the Ryan plan by denying that Medicare cuts already enacted into law are even worthy of projecting into the future.”

On the contrary, experience and public choice theory suggest that the Ryan plan has a better shot at reducing future Medicare outlays than past efforts, because the Roadmap would change the lobbying game that fuels Medicare’s growth.

For more on Ryan’s Roadmap, click here. For more on Medicare, read David Hyman’s Medicare Meets Mephistopheles. For more on public choice economics, click here.

On September 26, 2010 — 92 years after the WWI officially ended — Germany made her last payment of $94 million in reparations “to private individuals, pension funds and corporations holding debenture bonds as agreed under the Treaty of Versailles.” As Keynes rightly predicted, the unreasonably high French demands for financial reparations led to German economic weakness. The end result was hyperinflation, which was one of the principal causes of Hitler’s rise to power and the start of the Second World War. In spite of losing two world wars, Germany did eventually become the most powerful nation in Europe — through trade, capitalism and German ingenuity.

That’s the claim the Obama administration made in court. As Glenn Greenwald puts it:

[W]hat’s most notable here is that one of the arguments the Obama DOJ raises to demand dismissal of this lawsuit is “state secrets”: in other words, not only does the President have the right to sentence Americans to death with no due process or charges of any kind, but his decisions as to who will be killed and why he wants them dead are “state secrets,” and thus no court may adjudicate their legality.

Italics in the original. My colleagues Gene Healy and Nat Hentoff have expressed concerns about targeted killings. Charlie Savage wrote a good piece on this that highlights how even the most ardent defenders of executive power may blush at this broad claim of power.

The government’s increasing use of the state secrets doctrine to shield its actions from judicial review has been contentious. Some officials have argued that invoking it in the Awlaki matter, about which so much is already public, would risk a backlash. David Rivkin, a lawyer in the White House of President George H. W. Bush, echoed that concern.

“I’m a huge fan of executive power, but if someone came up to you and said the government wants to target you and you can’t even talk about it in court to try to stop it, that’s too harsh even for me,” he said.

In fairness, Rivkin would defend the administration’s claim of power on other grounds — that targeting is a “political question” for the elected branches of government — but this approach seems to have lost out because it invites the judiciary to determine whether the U.S. is at war in Yemen.

Amending the Authorization for the Use of Military Force passed by Congress after 9/11 is long overdue. What groups are we truly at war with, where does the line between war and peace sit, who can we detain and kill, and what process is owed before a citizen may be targeted with lethal force? Questions of war are political in nature, and if we don’t know the answers, it is Congress’ role to step in and provide them.

A common defense offered for keeping Fannie Mae and Freddie Mac, or something like them, is that the market simply cannot absorb the same level of mortgage lending without them. The central flaw in this argument is that Fannie and Freddie themselves must be funded by the market. So if the financial markets can absorb X in GSE debt, then the financial markets can absorb X in mortgages.

Different market participants currently face different capital requirements for the same assets. To some extent, Fannie and Freddie were a vehicle for shifting mortgage risk from higher capitalized institutions to less capitalized. If the Obama administration and bank regulators are serious about closing “regulatory gaps” then all entities backed by the govt, implicit or otherwise, should hold the same capital against the same risks. In the following I will thus assume that differences in capital requirements behind mortgages are irrelevant.

So to determine who could absorb the GSEs’ buying of mortgages, let’s look at who holds GSE debt. Of the approximately $5 trillion in GSE debt and mortgage backed securities (MBS), about a trillion is held by commercial banks and thrifts. Another trillion is held by insurance companies and pension funds. Close to a trillion is held by mutual funds. That quickly gets one to 3 trillion. Households and state/​local governments also hold close to a trillion. That leaves us with about a trillion left, held mostly by foreign governments (usually central banks). For this analysis, I am using data pre-Federal Reserve purchases of GSE debt/​MBS.

Given that banks hold about a trillion in excess reserves and over 9 trillion in deposits, I think its fair to assume commercial banks could easily absorb another $1 trillion in mortgages, as represented by foreign holders. Some holders of GSE debt are legally prohibited from holding mortgages. These entities can generally hold bank commercial paper (think mutual funds) which could then fund the same level of mortgages. 

The point here should be clear, by swapping out GSE debt for mortgages, our financial markets have sufficient capacity to replace Fannie and Freddie. In fact, we are the only advanced country that does not fund our mortgage market primarily or exclusively with bank deposits. This analysis also does not assume any reduction in the size of our mortgage market, which should actually be an objective of reform. We devote too much capital to mortgages, at the expense of more productive sectors of our economy.