Arnold Kling  

Michael Greve on Fiscal Federalism

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He describes the growth of state and local spending, the incentive for the Federal government to enact soft bailouts, and finally a future in which we come to resemble Argentina.


Medicaid represents well over 40 percent of all federal transfer payments. The vertical fiscal imbalance has reached Argentinian proportions: the feds pay 60, 70, or 80 percent of state expenditures. Moreover, the Congress has deliberately put itself into the position of the Argentinian legislature and agreed to write a blank check for whatever the federal expenditures the states' fabulous experiments may entail. The contours of state programs, in turn, are haggled out between a federal bureaucracy with ample discretionary and waiver authority and individual states that vary widely with respect to both the local spending demand and their propensity and ability to game the system.

Have a nice day.


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COMMENTS (2 to date)
Becky Hargrove writes:

There are doctors who would like to be able to teach people how to heal others, especially people who have no money either for healthcare or for medical school. There are attorneys who would like to help the doctors do that legally and productively. Eventually the two will get together to make sure that we don't have to cry like Argentina. Hope your day gets a bit better!

John Roccia writes:

Imagine you are in a family, and you have a dozen or so brothers and sisters. You all work. You are children of a single parent.

Your father, presumably very wise, tells you children that instead of having to stretch your meager paychecks across many different bills, that he will pay all your expenses. He requires that you contribute about a third of your paychecks to him (maybe a little more or a little less depending on what you make), but he’ll cover any expenses you accrue. Your school, your doctor visits, your car payments. No matter what you rack up, he’s going to pay.

So naturally you live a little beyond your means. You drive a car that’s more expensive than you would if you were looking at your own money, you eat out more often, etc. But the bills always get paid, so this seems like a good system.

Then one day… one day you find out that your dear old Dad doesn’t even have a job. He’s been paying all those bills (and his own, too!) with a combination of the part of your paychecks he collects (which of course isn’t enough) and putting the rest on credit cards. Massive, massive credit card debt has accrued as a result of this.

And that debt is still there when he dies, since he never had any way of paying it off. And you inherit it, because that’s the way debt works.

Welcome to government.

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