Ending the Federal Inducements for States to Spend Money

The Arkansas Capitol Building 

Government at all levels will either quit spending money at a higher rate than economic growth or such spending will destroy the Republic. The choice is that stark, and I believe this choice will soon be apparent to many, all who dare see it, rather than just the few foresighted individuals who now perceive it. If too few dare to come to grips with fiscal reality, the Republic will end in a super-nova of debt and corruption. Presently, that last appears to be the most likely outcome as too many influential players have positioned themselves to benefit from the generational looting.

Nevertheless, whether we are able to preserve whatever is left of the Republic by radically altering our current fiscal course or whether we must needs rebuild from the ashes, it is necessary to understand how it is that government spending has spiraled out of control and what we might do to stop it.

One method by which the central government encourages out-of-control spending is by offering to pay a share of the cost if a smaller unit of government increases spending. The most extreme example of this in recent times is Obamacare, whereby the Federal Government paid 100% of the cost of insurance for those under 100% of the federal poverty level for three years, if only the states would agree to expand Medicaid to cover them. And Washington committed to pay 90% of the costs thereafter. Few politicians, pushed by the interests which would benefit, could resist the "free" money that was being offered by Washington. Never mind that in the long term the money necessary to sustain this new program does not exist. It is unsustainable, and therefore will not be sustained.

The problem with such policies is that economic costs and benefits are warped. If Arkansas does not expand Medicaid, then Arkansas will lose out on the "free" money while Arkansans will continue to pay whatever federal taxes are used to pay the bills for states which did take the "free" money. Thus Arkansas politicians vote to take the money, even if their population was initially against the idea (until the "free" money corrupts enough of them). The choice for the state was to spend and get in on the loot from the new program or don't spend and still be taxed for the spending of others.

Supreme court precedent has consistently ruled that the federal government could not simply seize the governing machinery of a state government and force them to implement a federal program, even if Washington was paying for it (using tax dollars harvested from the same population which makes up the states of course). But there is no need to force states to comply if the federal government can simply force state taxpayers to fund federal-state "partnership" programs that their states do not participate in. This is true whether the spending is financed through present taxation or cowardly generational looting (the use of debt). 

So long as the citizens of the state are on the hook for federal debt incurred funding "partnership" programs between state and federal governments then the states will be induced to join the program whether the people want it or not. The politician wants "free" money from the feds to hand out, and even if most people understand we can't afford it, there will be special interests clamoring for the spending. If the cost of the spending is not felt, then the money will be spent. Government "welfare" does not just corrupt poor uneducated people in the ghettos. It ultimately corrupts everyone it touches, including the politicians who buy votes with it. This is the road to fiscal ruin and we are well along it and our destination is in sight.

How might we prevent this perversion of cost benefit analysis? It is necessary to reverse the shifting and concealing of costs which occurs whenever a state which refuses to participate in an economic activity is irregardless forced to share in the costs of those which do. This principle can be taken too far and lead to the malady of anarchy, but we are a long way from this being our present malady. Rather we are at the opposite extreme where unaffordable spending which does not even have widespread and clear majority consent is nevertheless occurring because of warped incentives. We are at the one extreme of central statism, which is opposed by the other extreme of anarchy. Localism advocates for the balanced and moderate middle position. States which refuse to participate in federal attempts to use them to administer programs should not have to share the costs of those which do.

If the United States fails to control spending on its own and there is a fiscal collapse of the federal government, which appears to be the most likely possibility at this point, then Washington will not have the decency or courage to put any of the suggestions below into practice. In which case, whatever sort of nations arise from the ashes of the former United States should put them into practice. Of course the Localist Ideal is that the Central government would have no power to initiate such programs in the first place. Programs like Social Security, Medicaid, Medicare, HUD, and even most defense spending, would be state programs, if the citizens of each state desired them as I assume most if not all would. The Federal government would not even have control of a printing press which it could use to strategically grow itself and bribe its way to assume powers not originally granted to it -as the present federal government has done. 

The stakes are huge and there is no way to resolve many of these problems without confrontation of some kind. It can either be an orderly and rational process hopefully leaning on the courts at a time of our choosing, or it can be a bloody and chaotic process when we are least prepared for it due to our ignoring the problem until it precipitates systemic collapse.