The old saw says that the two things no one wants to see being made are laws and sausages.  That's probably unfair to sausages:

Buried in a 239-page amendment to the U.S. House of Representatives' financial regulatory overhaul is a provision that appears to do just one thing: exempts financial-services company USAA from some of the bill's tougher provisions.

The carve-out is one of a number of exceptions that allow companies to avoid fresh scrutiny envisioned by the White House, which is aiming to overhaul the nation's financial-regulatory apparatus. The beneficiaries run from corporations such as General Electric Co. and Pitney Bowes Inc. to USAA, which caters to members of the military and their families, to so-called fraternal benefit societies.

But for those of you who think more financial regulation is necessary to avoid future financial crises, and that therefore exempting certain companies is problematic, no need to worry:

Referring to USAA, House Financial Services Committee Chairman Barney Frank (D., Mass.) said ... "There's no remote prospect of them being a problem."

The results of yesterdays two gubernatorial elections - big wins for Republicans in Virginia and New Jersey - provide renewed hope for people with political preferences like mine:

The only thing worse than the Republicans is the Democrats, and vice versa.

Thus, I am not pleased because I want Republicans rather than Democrats to run the country; I am pleased because I want gridlock: a Congress with sufficient Republicans and Blue Dog Democrats to defeat most of the initiatives proposed by liberal Democrats.

Gridlock is not the ultimate goal, of course; I would like to see the U.S. eliminate huge amounts of existing government. But for starters, not enacting any new government would be an improvement over the path Democrats will adopt unconstrained.

It is nevertheless too early to forecast what will happen in the mid-term elections next year. If the economy has recovered substantially, the Democrats may hold their own. Last night's results nevertheless suggest that independents may be less enthusiastic about President Obama and the Democrats than they were last fall, and this should tilt the composition of Congress toward the Republicans.

That is one reason the Democrats are pushing so hard to get their agenda adopted immediately. They know their window of opportunity may soon close.

Daniel Henninger of the WSJ writes about yesterday's election results:

What was learned Tuesday is that the American voter is absolutely, totally, unremittingly disgusted with both political parties.

I could not agree more. I am not persuaded, however, by Henninger's assessment of what the electorate wants. He says

More than anything, the American voter is desperate for political leadership.

This may be part of the story, but here's a different interpretation: a signficant fraction of the electorate is neither liberal nor conservative but libertarian.

Not over the top, wingnut libertarian like me, but moderate, restrained libertarian: fiscally conservative and socially tolerant.

I doubt this augurs a flood of officially libertarian candidates. But perhaps it means that more politicians will shift toward the soft libertarian perspective.

In separate actions to address Americans’ continuing economic hardship, the government moved Thursday to assist long-unemployed workers and struggling businesses, as well as home buyers and homeowners facing foreclosure.

Fannie Mae, the federally controlled mortgage company, announced a Deed for Lease program in which those in danger of eviction may be able to stay as tenants in their houses for at least a year.

At the same time, Congress gave final approval to a stimulus measure that will extend unemployment benefits for the longtime jobless, aid that will bring total assistance for many to nearly two years. Other provisions of the bill will expand two popular tax breaks — one for home buyers, the other for businesses operating at a loss.

The worst components of these extensions of the stimulus are those that support housing. The U.S. economy got into trouble in part because it over-invested in housing. The recession is a chance to re-allocate investment from housing to non-residential investment (factories, equipment, R&D) and for people who bought homes they could not afford to find smaller houses or apartments.

Propping up the housing market merely delays inevitable adjustments and perpetuates a misallocation of resources.

Responses from Simon Johnson, Mark Thoma, Russell Roberts, and me, at Room for Debate.

My answer in brief: probably not.

Blogger Matt Yglesias has described my op-ed on health care as follows:

Meanwhile, in Harvard economist and Cato Institute senior fellow Jeffrey Miron’s dystopia, if your parents wind up with no money through bad luck or poor decision-making and then you get sick you’ll just die on the street for lack of money.

Did I really say such an outrageous thing? Well, I did not use exactly those words (as Matt makes clear), but yes, that is the logical implication of my position.

And I stand by it. Here's why.

First, my assessment is that even with no government health insurance, hardly anyone would die on the street for lack of health care. The poor would use their income transfers to buy some health care or insurance. The poor would receive private charity. And health care would be far less expensive due to elimination of the distortions caused by government health insurance.

Second, my position is that government provision of health insurance is enormously inefficient: it means worse health care for everyone, and it wastes resources that can be put to other uses. So the negative of having a few people suffer without government health insurance must be balanced against the good of having better medical care for all and against the good that can be accomplished with those saved resources.

That good might be lower taxes for everyone, or more government spending on education, or greater public health spending to combat HIV in poor countries. Whatever the alternate uses turn out to be, one cannot escape the fact that a tradeoff exists between protecting the poor and other goals.

Medicare has become a scary word to the doctors at the largest private group practice in Kansas City, Mo.

It's so scary that most physicians at Kansas City Internal Medicine, with 65% of its nearly 70,000 active patients age 65 or older, have stopped accepting walk-in Medicare enrollees, said Dr. David Wilt, an internist at the group.

Wilt and his colleagues say they are shunning the area's growing senior population because they believe Medicare doesn't reimburse physicians enough to cover the cost of care.

This outcome is inevitable under government provided health insurance. As health technology improves, expenditure on insured health care grows rapidly. Governments respond by limiting payments, lest deficits mushroom.

This problem is going to get worse, with or without Obamacare. Thus the only consistent position for those who oppose Obamacare is to also oppose Medicare and Medicaid.

My thoughts, at Reason.com. The gist:

In the coming weeks and months, Congress will be turning its attention to financial market reform, in hopes of avoiding future financial crises. According to perceived wisdom, the root cause of the 2008 financial crisis was excessive risk-taking, and proper regulation can detect and prevent such excess in the future.

This view is a pipe dream. Most new regulation will do nothing to limit crises because markets will innovate around it. Worse, some regulation being considered by Congress will guarantee bigger and more frequent crises.

... about this story is the headline:

Politicians Butt In at Bailed-Out GM.

My thoughts on the current debate, at cnn.com. My bottom line:

The underlying presumption behind [proposals for "reform"] is that government health insurance should be expanded to cover the uninsured.

This presumption is wrong. Government should not subsidize health insurance -- for the uninsured, the poor, the elderly or anyone else -- or regulate health insurance markets.

Two EPA lawyers write:

Offsets -- considered indispensable to keeping cap-and-trade affordable -- are supposed to be "additional" reductions beyond what is legally required. But experience with offsets in Europe and California has shown that ensuring real "additionality" is not an achievable goal.

Suppose, for example, that a landowner is paid not to cut his forest so that it can continue capturing carbon dioxide from the atmosphere. Purchasing this offset allows owners of a coal-fired power plant to burn extra coal, above the cap.

But if the landowner wasn't planning to cut his forest, he just received a bonus for doing what he would have done anyway. Even if he was planning to cut his forest and doesn't, demand for wood isn't reduced. A different forest will be cut. Either way, there is no net reduction in production of greenhouse gases.

Here is a different example of "offset." A friend comes to me and says, "I want to have an affair, but if I did I would feel guilty about increasing marital discord in the world. So I want you to forego that affair your were "planning" to have. That way, the net number of affairs does not go up, and I will not feel guilty."

In yesterday's post I wrote that the Obama's administration limits on executive compensation would have minimal impact in part because the affected executives would quit and work elsewhere.

Today's Washington post reports the following:

Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart. ...

Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.

At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.

At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.

The way to limit executive compensation is to let failing companies fail.

I rarely agree with Paul Krugman's views on economic policy, but his column today is dead on. His point is that China is propping up its currency, which is probably bad for China (because it distorts their choice of exports versus imports) and bad for the U.S. (because it hurts our exports), yet the U.S. refuses to recognize this fact:

U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

I fully agree. The U.S. should take no official position on the value of China's currency, and we would be better off if China let its value fall to market levels.

President Obama spoke at MIT yesterday, touting the benefits of the cap and trade legislation pending in Congress. According to the President,

"Such legislation can transform our energy system into one that is far more efficient, clean and independent -- making the best use of resources we have in abundance, through clean coal technology, safe nuclear power, sustainably grown biofuels and energy we harness from wind, waves and sun," Obama said.

The Washington Post coverage goes on to say,

But the legislation has stalled in the Senate, where critics say that curbing greenhouse gas emissions linked to climate change could lead to higher energy prices.

The President's claims for cap and trade legislation, and the Post's comment on this legislation, illustrate precisely what is wrong with it.

The President's comment does not say, "Cap and Trade will make energy more expensive; that is good because then people will use less of it."

Rather, the President's description is a deliberate obfuscation: the cap and trade approach allows some advocates to pretend, and some voters to believe, that we can reduce carbon emissions for free by magically becoming more energy efficient or using alternative energy.

That is nonsense. Cap and trade may reduce energy emissions (although it may not, because the offset provisions could virtually gut its impact), but if it does so, it will be by raising energy prices.

A better way to raise energy prices, however, is carbon taxes. Anyone who believes the U.S. should reduce its use of fossil fuel should advocate for those, not cap and trade.

How and when should the Fed unwind the enormous monetary expansion it undertook in response to the financial crisis and recession:

As the Federal Reserve's next meeting approaches in early November, an internal debate is brewing about how and when to signal the possibility of interest-rate increases.

The Fed has said since March that it will keep rates very low for an "extended period." Long before it raises rates, however, it will need to change that public signal to financial markets.

Because the recovery is so young and is expected to be so weak, many central bank officials are comfortable, for now, keeping rates very low. But they are beginning to strategize about how to walk away from the "extended period" language.

My suggestion is that the Fed announce a path of gradual increases in the federal funds rate, say beginning next year and lasting for two years, until the rate is at some "normal level."

This approach is different than what the Fed is likely to undertake; it will probably want to maximize "discretion," the ability to adjust on the fly as conditions unfold.

My approach maximizes predictability and reassurance: it commits the Fed to shrinking the money supply and heading off future inflation. This reassures markets and takes substantial uncertainty out of the picture.

The problem with my approach is the pre-commitment: everyone knows the Fed could abandon a pre-announced path.

But such an announcement might still give markets useful guidance, and the Fed would know that any deviation would itself upset markets, and this might encourage adherence to the pre-commitment.

I do not expect the Fed to follow my advice, but I think it is an approach worth considering.

In defending his decision to sign Maine's same-sex marriage law, Governor John Baldacci noted that,

"The research that I did uncovered that a civil union didn't equal a civil marriage."

His statement is undeniable as a description of the current political landscape: many opponents of same sex marriage do not object to civil unions for same-sex couples, and many advocates of gay marriage are not satisfied with civil unions.

Yet Baldacci's statement is also puzzling: for all practical purposes, civil union and civil marriage are identical.

So how might governments resolve the conflict? By exiting the "marriage" business and providing civil unions only to both same-sex and opposite-sex couples.

This accomplishes any legitimate goal of having government define and enforce the particular bundle of contracts (regarding inheritance, property, children) known as civil marriage. But it leaves the controversial aspect of this action - using the term marriage - to private parties.

Under this policy, some couples will just get civil unions. Some couples will also get "married" in religious ceremonies, but these will have no legal significance. This will apply to both same-sex and opposite-sex couples.

Everybody should be happy with this arrangement. Right?

It is good to see that amidst all the pressing issues of the day, our fearless leaders in Washington are focussed on the right things:

Senator Orrin Hatch (R-Utah), Rep. Neil Abercrombie (D-Hawaii) and Rep. Joe Barton (R-Texas) said Monday that they are backing a federal political action committee "dedicated to discarding the Bowl Championship Series and instituting a competitive post-season championship for college football."

The people behind Playoff PAC – whose tagline is "Beat the BCS. Save College Football." – believe that the Bowl Championship Series is "inherently flawed," the group said in a press release.

Actually, I am delighted to see Congress spending its time on the BCS; that means less time designing bad stimulus packages, or byzantine cap-and-trade programs, or ruinous expansions of government health insurance.

Under a propsal to be announced today by a special state commission,

Massachusetts students would be required to stay in school until age 18 ... , part of a broader effort to halve the state’s high school dropout rate.

This is a terrible idea.

The best path for many 16-17 year olds is not high school but vocational tech, apprenticehip, or even a minimum wage job. Additional schooling is good for some 16-17 year olds; that does not mean it is good for everyone.

A higher dropout age will in any case do little to keep students in school; many already drop out before legally permitted because enforcement is lax, and the resources to enforce an even higher age would be substantial. Those resources are better employed serving the students who want to be in school.

Students forced to stay in school, moreover, especially at ages 16-17, can be disruptive or even dangerous to other students.

The right policy change, therefore, is to lower the dropout age, or even eliminate it. Raising it to 18 will waste resources and reduce school quality for those who want to learn.

The Obama administration announced yesterday that it

will order the firms that received the most aid to slash compensation to their highest-paid employees ... .

The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent.

This plan, as emotionally appealing as it might appear, is miguided.

Excutive compensation did not cause the financial crisis, nor will limits prevent the next one.

The limits will not work, since the affected employees will either quit and work elsewhere, or find creative ways to maintain the same level of compensation (e.g., "retire," get hired as a consultant, and charge exorbitant fees), or relocate to overseas branches where they can circumvent the limits.

And government control of compensation is a horrendous precedent that will open the doors to even more destructive meddling in the financial sector.

My earlier thoughts on this issue are here. Bottom line:

The lesson to be learned ... is that this kind of dilemma is one reason governments should not provide bailouts in the first place. Once a bailout occurs, the government is inevitably drawn into the day-to-day business decisions of the companies and forced to resolve issues with no good resolution.