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Posts Tagged ‘Federalism’

I’ve been asked whether I’m a hypocrite because I support decentralization while at the same time being critical of state and local governments.

I don’t think there’s any inconsistency in my position. Here’s some of what I wrote last July.

I’m a strong believer in federalism, but not because I think state and local governments are competent. Politicians and interest groups are a toxic combination in all circumstance. But at least people have considerable ability to cross borders if they want to escape greedy and despotic governments at the state and local level. And when the geese with the golden eggs can fly away, this facilitates competition between governments and forces politicians to restrain their appetites.

Maybe I’m just daft (as my leftist friends often claim), but I think that’s a perfectly defensible position.

Anyhow, I feel compelled to give that bit of background because it’s once again time to mock state and local governments.

Here’s an excerpt from the Detroit News that tells you everything you’ll ever need to know about the stupidity of government. The city actually loses money on parking enforcement.

The city is paying $32 to issue and process a $30 parking violation, and it hasn’t adjusted rates since 2001. On top of that, about half of Detroit’s 3,404 parking meters are not operating properly at any given time, says Orr’s spokesman, Bill Nowling.

Wow, this must be an all-time record. A local government can’t even fleece people competently.

The only thing more shocking is when the government is too incompetent to give away money, which actually happened with one boondoggle in the United Kingdom.

Now let’s travel a few thousand miles and look at another example of how Washington isn’t the only place where government does strange things.

I’ve written many times about the lavish pay and gold-plated benefits of bureaucrats, but cops in Hawaii may have set a new record for fringe benefits. Or maybe this is a new version of friends with fringe benefits, to coin a phrase.

Here are the fun (and PG-13-rated) details in Jacob Sullum’s article in Reason.

Hawaii’s prostitution law includes an exemption for “any member of a police department, a sheriff, or a law enforcement officer acting in the course and scope of duties.” …That’s right: Cops insisted that they must be free not just to receive blowjobs and handjobs from prostitutes but also to engage in vaginal and anal intercourse with them. Evidently the police also need permission to engage in “flagellation or torture by or upon a person as an act of sexual stimulation or gratification” (Hawaii’s definition of “sadomasochistic abuse”). Just in case. Since an entire chamber of the state legislature agreed to this request, the cops must have had a pretty persuasive argument.

Hmmm…makes me wonder if the legislators also added an exemption for themselves. Based on the state’s tax rates, we already know they screw taxpayers for money, so it’s not much of a leap to suspect they’re doing the same thing on a one-on-one basis.

Though, as shown in this cartoon, they’re not used to spending their own money.

All kidding aside, Jacob makes the very sensible point that the real problem is that politicians have enacted laws against a victimless crime.

…the double standard demanded by police highlights the utter absurdity of prostitution laws. Police do not commit murder to catch killers or knock over banks to catch robbers. Yet here they are insisting that they need the leeway to have sex with prostitutes in order to stop people from having sex with prostitutes. Even if cops never take advantage of that freedom, they routinely commit the crime of agreeing to pay for sex, except that in their case it is not treated as a crime. That exemption is considered acceptable only because exchanging money for sex, unlike murder and robbery, does not violate anyone’s rights. But if so, why not broaden the exemption to cover everyone?

I agree. I find the whole business of prostitution very distasteful, just as I feel nothing but disdain for illegal drugs. But prohibition just makes matters worse.

P.S. Since this post looks at both parking meters and prostitution, you’ll be amused by the way the Germans combined those two topics.

P.P.S. I periodically share polling data that strikes me as significant. Most recently, for instance, I noted that crazy left wingers openly admitted they want higher tax rates even if the government doesn’t raise any revenue. That was a depressing result, but I was encouraged to see that a vast majority of Americans view big government as a threat to the nation’s future.

Here are a couple of new polls that caught my attention.

1. I’m rather worried that a new Rasmussen poll found that “for the first time, fewer than half of voters believe tax cuts help the economy.” For what it’s worth, I suspect this is because politicians often gravitate to “tax cuts” that fail to reduce the burden on productive activity. Instead, they make the code more complex by expanding credits, deductions, exemptions, preferences, and exclusions.

If they started pushing for lower marginal tax rates or fundamental tax reform, the polling numbers would probably be better.

2. Let’s now cross the ocean and look at some remarkable Gallup data on the role of government in thwarting small businesses.

Gallup Europe Entrepreneurship

I already knew Greece had stunningly absurd barriers to entrepreneurship (click here for an unbelievable example), so one can only imagine the types of nonsense imposed by Italy’s feckless government.

3. Let’s close with some very good news. It seems that young people are beginning to realize that Ronald Reagan was right (see second video) when he said government is the problem rather than the solution.

Check out this excerpt from a report by National Journal.

Millennials who may have voted with youthful exuberance in 2008 seem to have grown fatigued with the government’s inability to get things done. In 2009, 42 percent of millennials said government programs are usually inefficient and wasteful, according to Pew data. By 2012, that number had increased to 51 percent. And young people say they’re losing trust in the government to Do the Right Thing. In 2009, 44 percent of millennials said they trust the government to do what’s right all or most of the time. By 2013, that dropped to 29 percent.

Makes me think maybe these youngsters finally figured out that programs like Social Security are empty Ponzi schemes.

By the way, here are the best poll numbers I’ve ever seen.

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Ukraine is in the news and that’s not a good thing.

I’m not a foreign policy expert, to be sure, but it can’t be a positive sign when nations with nuclear weapons start squabbling with each other. And that’s what’s happening now that Russia is supposedly occupying Crimea and perhaps other parts of Ukraine and Western powers are complaining.

I’m going to add my two cents to this issue, but I’m going to approach it from an unusual angle.

Look at this linguistic map of Ukraine. The red parts of the country show where Russian is the primary language and most people presumably are ethnically Russian.

Russian in Ukraine

Now look at these maps (from here, here, here, and here) showing various election results in the country.

Ukraine Election Results

Like I said, I’m not overly literate on foreign policy, but isn’t it obvious that the Ukrainians and the Russians have fundamentally different preferences?

No wonder there’s conflict.

But is there a solution? And one that doesn’t involve Putin annexing – either de facto or de jure – the southern and eastern portions of the nation?

It seems there are two options.

1. Secession - The first possibility is to let the two parts of Ukraine have an amicable (or at least non-violent) divorce. That’s what happened to the former Soviet Union. It’s what happened with Czechoslovakia became Slovakia and the Czech Republic. And it’s what happened (albeit with lots of violence) when Yugoslavia broke up.

For what it’s worth, I’ve already suggested that Belgium should split into two nations because of linguistic and cultural differences. So why not the same in Ukraine?

Heck, Walter Williams has argued that the same thing should happen in America, with the pro-liberty parts of the nation seceding from the statist regions.

2. Decentralization - The second possibility is for Ukraine to copy the Swiss model of radical decentralization. In Switzerland, even though there are French cantons, German cantons, and an Italian canton, the various regions of the country don’t squabble with each other because the central government is relatively powerless.

This approach obviously is more attractive than secession for folks who think that existing national borders should be sacrosanct.

And since this post is motivated by the turmoil in Ukraine, it’s worth pointing out that this also seems to be a logical way of defusing tensions across regions.

I confess I have a policy reason for supporting weaker national governments. Simply stated, there’s very strong evidence that decentralization means more tax competition, and when governments are forced to compete for jobs and investment, the economy is less likely to be burdened with high tax rates and excessive redistribution.

Indeed, we also have very strong evidence that the western world became prosperous precisely because the proliferation of small nations and principalities restrained the natural tendencies of governments to oppress and restrain economic activity.

And since Ukraine (notwithstanding it’s flat tax) has a very statist economic system – ranking only 126th in the Economic Freedom of the World index, maybe a bit of internal competition would trigger some much-needed liberalization.

P.S. If you’re intrigued by the secession idea promoted by Walter Williams, you’ll definitely enjoy this bit of humor about a national divorce in the United States.

P.P.S. If you think decentralization and federalism is a better option than secession, the good news is that more and more Americans have unfavorable views of Washington.

P.P.P.S. The tiny nation of Liechtenstein is comprised of seven villages and they have an explicit right to secede if they become unhappy with the central government in Vaduz. And even the statist political crowd in the United Kingdom is considering a bit of federalism.

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I’ve posted hundreds of charts over the past several years, including on favorite topics such as tax code corruption and counterproductive government spending.

But arguably the most powerful and compelling chart I’ve ever shared is on the topic of education. Prepared by my Cato colleague, Andrew Coulson, it shows that massive increases in spending and bureaucracy (which accompanied increasing federal involvement and intervention) have had zero impact on educational performance.

Keep that chart in the back of your mind as we consider what George Will has to say about President Obama’s scheme – known as Common Core – to expand federal involvement and intervention.

We have several excerpts, beginning with this passage outlining some of his concerns.

Common Core…is the thin end of an enormous wedge. It is designed to advance in primary and secondary education the general progressive agenda of centralization and uniformity. …proponents of the Common Core want its nature and purpose to remain as cloudy as possible for as long as possible. Hence they say it is a “state-led,” “voluntary” initiative to merely guide education with “standards” that are neither written nor approved nor mandated by Washington… Proponents talk warily when describing it because a candid characterization would reveal yet another Obama administration indifference to legality.

Will then notes that we’ve been sliding down the slippery slope of centralization and Washington control.

The 1965 Elementary and Secondary Education Act (ESEA), the original federal intrusion into this state and local responsibility, said “nothing in this act” shall authorize any federal official to “mandate, direct, or control” schools’ curriculums. The 1970 General Education Provisions Act stipulates that “no provision of any applicable program shall be construed to authorize any” federal agency or official “to exercise any direction, supervision, or control over the curriculum, program of instruction” or selection of “instructional materials by any” school system. The 1979 law creating the Education Department forbids it from exercising “any direction, supervision, or control over the curriculum” or “program of instruction” of any school system.

And Common Core is just the latest example.

…what begins with mere national standards must breed ineluctable pressure to standardize educational content. Targets, metrics, guidelines and curriculum models all induce conformity in instructional materials. Washington already is encouraging the alignment of the GED, SAT and ACT tests with the Common Core. By a feedback loop, these tests will beget more curriculum conformity. All of this will take a toll on parental empowerment, and none of this will escape the politicization of learning like that already rampant in higher education.

If this sounds familiar, it’s probably because you’re aware of other slippery slope examples, such as the tiny income tax in 1913 that has morphed into the internal revenue code monstrosity of today.

Returning to the topic of education, Will warns that the one-size-fits-all approach will undermine the innovation and experimentation needed to figure out how best teach kids.

Even satisfactory national standards must extinguish federalism’s creativity: At any time, it is more likely there will be half a dozen innovative governors than one creative federal education bureaucracy. And the mistakes made by top-down federal reforms are continental mistakes.

I particularly like his warning about “continental” mistakes. You get the same problem with global regulation, by the way.

The bottom line, as Will explains, is that Common Core is yet another example of a failed approach.

What is ludicrous is Common Core proponents disdaining concerns related to this fact: Fifty years of increasing Washington input into K-12 education has coincided with disappointing cognitive outputs from schools. Is it eccentric that it is imprudent to apply to K-12 education the federal touch that has given us HealthCare.gov? …Opposition to the Common Core is surging because Washington, hoping to mollify opponents, is saying, in effect: “If you like your local control of education, you can keep it. Period.”

You won’t be surprised to learn that Cato Institute experts are among the leading opponents of Common Core. Here’s what Andrew Coulson, in a column warning about the negative impact on private schools, has written.

…the Common Core–aligned tests create a powerful incentive for schools to teach the same concepts in the same order at the same time. This would make it all but impossible for schools to experiment with new ways of tailoring education to meet the needs of individual children — they will instead have to resort to expecting that all children who happened to be born in the same year progress at the same rate across subjects.

And another Cato scholar, Neil McCluskey, points out that other education experts also think Common Core is a dud.

The Common Core is opposed by scholars at leading think tanks on the right and the left, including the Heritage Foundation, the Hoover Institution, the Brookings Institution and the Cato Institute. My research has shown that there is essentially no meaningful evidence that national standards lead to superior educational outcomes. Hoover Institution Senior Fellow Eric Hanushek, an education economist and supporter of standards-based education reform, has reached a similar conclusion, recently writing: “We currently have very different standards across states, and experience from the states provides little support for the argument that simply declaring more clearly what we want children to learn will have much impact.” Hanushek’s conclusion dovetails nicely with Common Core opposition from Tom Loveless, a scholar at the left-leaning Brookings Institution. In 2012, Loveless demonstrated that moving to national standards would have little, if any, positive effect because the performance of states has very little connection to the rigor or quality of their standards, and there is much greater achievement variation within states than among them. In fact, Loveless has been one of the clearest voices saying the Core is not a panacea for America’s education woes, writing: “Don’t let the ferocity of the oncoming debate fool you. The empirical evidence suggests that the Common Core will have little effect on American students’ achievement. The nation will have to look elsewhere for ways to improve its schools.”

We started this post with a very powerful chart, so let’s end with another chart.

It’s not as visually compelling, but it shows that the United States already spends more on education than another other nation.

But if you look at the data is this post, you’ll see that American students are lagging behind their counterparts in other developed nations.

Maybe, just maybe, it’s time to put kids first. Perhaps we should discard the Bush-Obama approach of centralization and spending and instead choose a better path.

In other words, let’s learn from Chile, Sweden, and the Netherlands.

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The welfare state is a nightmare.

Programs such as Medicaid are fiscal catastrophes. The food stamp program is riddled with waste. The EITC is easily defrauded, even sending checks to prisoners. And housing subsidies are a recipe for the worst forms of social engineering.

The entire system should be tossed in the trash.

But what’s the alternative? Some libertarians argue that we should eliminate the dozens of Washington programs and replace them with a government-guaranteed minimum income. I address this issue in an essay for Libertarianism.org.

Some libertarians argue that the state should provide a minimum basic income, mainly because this approach would be preferable to the costly and bureaucratic amalgamation of redistribution programs that currently exist. It’s hard to disagree with the notion that the current system is a failure. The Cato Institute’s Michael Tanner has produced a searing indictment of the modern welfare state, pointing out that more than $1 trillion is spent every year on redistribution programs for the ostensible purpose of alleviating economic hardship, yet (or more likely as a result) the poverty rate is at an all-time high. Perhaps one reason poverty remains high is that such programs make leisure more attractive than work, as painstakingly illustrated in a study produced by Tanner and Charles Hughes. Moreover, welfare programs create very high implicit marginal tax rates, making it very difficult for poor people to improve their living standards by engaging in additional productive behavior. It’s almost as if the system was designed to create permanent dependency.

In other words, it seems that nothing could be worse than the current system. And if you want more evidence, here’s a very powerful video on the failure of the modern welfare state.

But what about the idea of trashing what we have today and instead offering everyone some sort of basic income? As I noted in my essay, there are “…some very iconic libertarian figures who support at least some version of their approach, including Milton Friedman, Friedrich Hayek, and Charles Murray.”

I agree, but only sort of. I like the idea of radical reform, but I think there’s a better road to Rome. It’s called federalism.

The bottom line for advocates is that anything would be better than the current system, so why not try something new? They’re right, but there’s actually a better way of approaching the issue. Why not take all income-redistribution programs, put them into a single block grant, and then transfer the money – and responsibility – to state governments?

Here’s my argument for decentralization and federalism.

In an ideal world, the block grant would gradually diminish so that states would be responsible for both the collection and disbursement of all monies related to welfare. But that’s a secondary issue. The main benefit of this federalist approach is that you stop the Washington-driven expansion of the welfare state and you trigger the creation of 50 separate experiments on how best to provide a safety net. Some states might choose a basic income. Others might retain something very similar to the current system. Others might try a workfare-based approach, while some could dream up new ideas that wouldn’t stand a chance in a one-size-fits-all system run out of Washington, DC. And as states adopted different systems, they could learn from each other about what works and what doesn’t work. And since it’s easier to influence decisions that are closer to home, taxpayers at the state level almost certainly would have more ability to impact what happens with their money.

And here’s the bottom line on why a federalist approach is the libertarian solution to the welfare state.

It also will satisfy the libertarian desire to get Washington out of the business of income distribution, while presumably producing a system that actually does a better job of helping the less fortunate escape government dependency. In other words, all the advantages of the basic income plan without the potential system-wide downsides.

By the way, I explain in the article that the 1996 welfare reform legislation was a test case for the decentralization model. The analogy isn’t perfect, I admit, but there’s a very strong case to be made that replacing the federal welfare entitlement with a block grant was good for taxpayers and good for the poor…and that it shows why states do a better job of dealing with redistribution than Washington.

Last but not least, I’m just a policy wonk, but I think the federalism strategy also has political appeal. As just noted, it worked with welfare reform. And I suspect a lot of non-libertarians and non-conservatives will intuitively understand that you’ll get better results if you allow diversity and experimentation at the state level.

P.S. There would be some bad news if we decentralized the welfare state. It could mean an end to the Moocher Hall of Fame.

P.P.S. Replacing the welfare state with a (hopefully shrinking) block grant only addresses the problem of “means-tested” programs. If you also want to solve the problem of old-age entitlements, that requires Medicare reform and Social Security reform.

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It’s a challenge to be a libertarian in Washington because you have to swim against the tide.

The vast majority of people in town are looking for excuses to spend money and amass power, and a small band of us are trying to convince them that the federal government should be limited in size and scope.

It may seem like a hopeless task.

*Libertarians argue against big expensive entitlement programs like Medicaid, explaining that it’s not a proper function of the federal government.

*Libertarians argue against stupid little publicity stunts like steroid hearings, explaining that it’s not a proper function of the federal government.

*Libertarians argue against emotional gestures such as disaster relief, explaining that it’s not a proper function of the federal government.

*Libertarians argue against the entire Department of Transportation, explaining that it’s not a proper function of the federal government.

I could provide more examples, but you get the idea. It seems as if libertarians are stuck with a Sisyphean task, urging “no” in a town filled with people who want to say “yes.”

But I don’t think our work is hopeless. I’ve already shared many reasons to be hopeful, and we now have some new polling data that should make us more optimistic. According to the folks at Pew, Americans have very low opinions of the federal government.

Here are the key details from a Washington Post story about the poll.

…28 percent of the public views the federal government favorably, down five points from a year ago and also the lowest percentage ever in a Pew survey on the topic. The lowly rating for Washington compares to 63 percent of people holding a favorable opinion of their local governments and 57 percent expressing a favorable view of their state governments. Even among Democrats, who tend to show more support for government, the numbers have dipped on the federal side. Fewer than half of Democrats– 41 percent– said they hold a favorable opinion of the federal government, representing a 10-point drop from the previous year.

These numbers should be very good news for anyone who wants to push a “federalism” agenda. And Gallup also has found considerable – and growing – hostility to the federal government.

In other words, the American people are on our side. Or, to be more precise, they broadly realize that Washington has too much power and money.

Our job is to translate that sentiment into public policy.

By the way, Switzerland has the strongest system of federalism, and it is doing very well by world standards. Canada also has a decentralized system that has produced some very good policy in recent years.

P.S. For those who care about the Constitution, it’s worth noting that America’s Founding fathers explicitly limited the powers of the central government.

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Art Laffer has a guaranteed spot in the liberty hall of fame because he popularized the common-sense notion that you can’t make any assumptions about tax rates and tax revenue without also figuring out what happens to taxable income.

Lot’s of people on the left try to denigrate the “Laffer Curve,” but it’s worth noting that even left-wing economists now admit that you don’t maximize revenue with a 100 percent tax rate.*

Indeed, I think the only people who now cling to that absurd view are the bureaucrats at the Joint Committee on Taxation.

But this post isn’t about the Laffer Curve. It’s about a disappointing column that Art Laffer wrote for today’s Wall Street Journal.

The issue is whether states should have the power to impose taxes on sales that take place outside their borders. Art starts the column with a very good point about the link between growth and living standards.

After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000. The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted.

That’s a great point. I’ve also tried to get people to focus on the importance of long-run growth.

Heck, just look at what’s happened in Hong Kong and Singapore and you’ll agree.

In his column, Art also correctly defines good tax policy.

The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems.

But he then asserts that an Internet sales tax cartel somehow will result in better policy.

…there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web. So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet). …The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.

This is a very disappointing collection of sentences. Let’s review.

1. States have declining sales-tax bases because state lawmakers treat that levy the same way that politicians in Washington treat the income tax – they put in loopholes in exchange for campaign cash and political support. For them to complain about declining sales-tax bases is sort of like the old joke about the guy who murders  his parents and then asks the court for mercy because he’s an orphan.

2. Art offers zero evidence that state governments would use the additional revenue from a state sales tax cartel to reduce income tax rates. What’s next, a column saying we should have a value-added tax because the politicians may use the revenue to get rid of the income tax? Yeah, good luck with that approach.

3. Why is it “inequitable” for there to be different tax policies in different states? That’s another way of describing federalism, and it’s something we should be celebrating and promoting. Particularly since it promotes tax competition, which is one of the most effective ways of restraining the greed of the political class.

4. The Internet sales tax cartel being promoted by Art and various politicians requires that governments have the ability to tax sales that tax place outside their borders. That’s an assault of sovereignty, particularly since out-of-state merchants will be coerced into being tax collectors for a distant government. This is the same dangerous ideology that is used by high-tax governments to promote global anti-tax competition policies.

5. Art offers zero evidence that the absences of a state sales tax cartel has led to higher income tax rates. Yes, some states have raised tax rates in recent years, but others have lowered tax rates.

For more information on why a sales tax cartel among the states would be a bad idea, here’s my short speech to an audience on Capitol Hill.

*This should be an obvious point, but I can’t resist emphasizing that maximizing revenue should not be the goal of fiscal policy.

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If you read through Article I, Section VIII, of the Constitution, it says nothing about Congress having the power to subsidize or pay for disaster relief.

But I realize very few people care about the Constitution, so I’m going to make a utilitarian argument against Federal Emergency Management Agency (FEMA) and other forms of federal involvement in natural disasters.

Best of all, I don’t really need to do any heavy lifting. Someone else already has put together a very strong indictment, using Dauphin Island in Alabama as a case study.

Here are some excerpts from a great bit of reporting and analysis in the Austin Statesman, except in the second sentence I would replace “inertia” with “stupidity.”

Congratulations, you’re subsidizing the luxury vacation homes of the rich

Even in the off season, the pastel beach houses lining a skinny strip of sand here are a testament to the good life. They are also a monument to the generosity, and perhaps to the inertia, of the federal government… The western end of this Gulf Coast island has proved to be one of the most hazardous places in the country for waterfront property. Since 1979, nearly a dozen hurricanes and large storms have rolled in and knocked down houses, chewed up sewers and water pipes and hurled sand onto the roads. Yet time and again, checks from Washington have allowed the town to put itself back together. Across the nation, tens of billions of tax dollars have been spent on subsidizing coastal reconstruction in the aftermath of storms, usually with little consideration of whether it actually makes sense to keep rebuilding in disaster-prone areas. If history is any guide, a large fraction of the federal money allotted to New York, New Jersey and other states recovering from Hurricane Sandy — an amount that could exceed $30 billion — will be used the same way. Tax money will go toward putting things back as they were, essentially duplicating the vulnerability laid bare by the hurricane.  …Like many other beachfront towns, [Dauphin Island] has benefited from the Stafford Act, a federal law that taps the U.S. Treasury for 75 percent or more of the cost of fixing storm-damaged infrastructure, like roads and utilities. At least $80 million, adjusted for inflation, has gone into patching up this one island since 1979 — more than $60,000 for every permanent resident. That does not include payments of $72 million to homeowners from the highly subsidized federal flood insurance program.

Conservatives often complain about welfare programs that pay single mothers to have children out of wedlock. That’s a legitimate complaint since the welfare state has failed both poor people and taxpayers. But they should apply the same analysis and apply even more moral outrage to handouts that encourage rich people to keep rebuilding in disaster-prone areas.

And there’s no question that federal handouts and giveaways are a driving force. You also won’t be surprised that one of America’s worst Presidents also has a role in this story.

Dauphin Island is a case study in the way the federal subsidies have enabled repetitive risk taking. Orrin Pilkey, an emeritus professor at Duke University who is renowned for his research in coastal zones, described the situation there as a “scandal.” The island, four miles off the Alabama coast, was for centuries the site of a small fishing and farming village reachable only by boat. But in the 1950s, the Chamber of Commerce in nearby Mobile decided to link it to the mainland by bridge and sell lots for vacation homes. Then Hurricane Frederic struck in 1979, ravaging the island and destroying the bridge. President Jimmy Carter flew over to inspect the damage. Rex Rainer, the Alabama highway director at the time, recalled several years later that the president “told us to build everything back just like it was and send him the bill.” With $33 million of federal money, local leaders built a fancier, higher bridge that encouraged more development in the 1980s. Much of that construction occurred on the island’s western end, a long, narrow sand bar sitting only a few feet above the Gulf of Mexico. “You can always look back and say, ‘Maybe we shouldn’t have done that,’ ” said Mayor Jeff Collier, who noted that many of the decisions were made before he took office more than a decade ago. “But we can’t turn the clock back.”

I have just one message for Mayor Collier. I don’t care about your damn clock. Your people should be free to rebuild, but don’t ask me to pay for it.

We do have a tiny bit of good news to report, thanks to libertarians and some of their allies.

A coalition in Washington called SmarterSafer.org, made up of environmentalists, libertarians and budget watchdogs, contends that the subsidies have essentially become a destructive, unaffordable entitlement. …This argument might be gaining some traction. Earlier this year, Congress passed changes to the federal flood insurance program that are supposed to raise historically low premiums and reduce homeowner incentives for rebuilding in the most hazardous areas.

But we need to do more than get rid of federal flood insurance subsidies.

Less widely known about than flood insurance are the subsidies from the Stafford Act, the federal law governing the response to emergencies like hurricanes, wildfires and tornadoes. It kicks in when the president declares a federal disaster that exceeds the response capacity of state and local governments. Experts say the law is at least as important as the flood program in motivating reconstruction after storms. In the same way flood insurance shields families from the financial consequences of rebuilding in risky areas, the Stafford Act shields local and state governments from the full implications of their decisions on land use. Under the law, the federal government committed more than $80 billion to disaster recovery from 2004 to 2011, according to a report from the Government Accountability Office. While billions of dollars went to relieve immediate suffering, including cash payments to families left homeless by storms, nearly half of the money was spent helping state and local governments clean and restore damaged areas and rebuild infrastructure.

Finally, I can’t resist sharing this one last excerpt from the story.

People here have formed strong emotional attachments to their island. “There’s a lot of wildlife and a lot of bird life, and it’s just a great place to relax,” said Jay Minus, a lawyer in Mobile who owns two homes on the western end. “You can sit on the porch and watch the dolphins swim past your house.”

Gee, I’m overjoyed that Mr. Minus has a nice view of dolphins. But it strikes me as very perverse that ordinary taxpayers around America are getting raped so this representative of the top 1 percent can enjoy nice views.

This is obviously a perfect example of where my ethical bleeding heart rule should apply.

So what’s the answer? Simple, end the federal government’s role, including getting rid of FEMA. Shikha Dalmia of the Reason Foundation explains why in the Washington Examiner.

A New York Times editorial declared that the impending storm proved that the country needs FEMA-style “Big Government” solutions more than ever. Salon, New Republic and other liberal outfits heartily agreed. Why do liberals love FEMA so much? Certainly not for its glorious track record. Rather, FEMA has been a great vehicle for expanding the welfare state. …So how did the new and improved FEMA perform post-Sandy, a storm for which it had lots of advance warning? Not so well. It didn’t set up its first relief center until four days after Sandy hit — only to run out of drinking water on the same day. It couldn’t put sufficient boots on the ground to protect Queens residents from roving looters. The Red Cross — on whom FEMA depends for delivering basic goods — left Staten Island stranded for nearly a week, prompting borough President Jim Molinaro to fume that America was not a Third World country. But FEMA’s most egregious gaffe was that it arranged for 24 million gallons of free gas for Sandy’s victims, but most of them couldn’t lay their hands on it.

What’s most amazing is that FEMA doesn’t even play a role in emergency response, even though the politicians and bureaucrats always imply that the Agency exists to be a rapid-relief “first responder.”

But if you think FEMA’s inability to provide rapid relief subverts the core reason for its existence, think again. A few days after the Times’ valentine, FEMA head W. Craig Fugate told the newspaper that the agency’s rapid response role is really a fallacy. “The general public assumes we are part of the response team that will be there the first couple of days,” he said. But it is really designed to deal with disasters several days after the fact. How does FEMA do that? By indiscriminately writing checks — a task at which it evidently excels.

Yes, we finally find something FEMA does with considerable skill. It can waste money.

FEMA administrator Elizabeth Zimmerman testified before Congress last year that between 2005 and 2009, 14.5 percent of the agency’s $10 billion-plus disaster aid budget was handed to people who didn’t qualify. The agency tried to get 154,000 of these people to return the money (on average, each had received about $5,000), but they filed a class action lawsuit forcing FEMA to pay them a multimillion settlement. And it forgave the debt of every one with an income below $90,000. …The bigger problem is not with who gets FEMA money, but why. Less than a sixth of Alabama’s $566 million allotment after Katrina financed legitimate government functions such as debris removal, repairing damaged infrastructure and restoring public utilities. The rest was all handouts: food stamps, subsidies for trailer homes and low-interest loans for small businesses. The FEMA website is already advertising goodies for Sandy victims, including 26 weeks of unemployment benefits and up to $200,000 worth of low-interest loans for home repairs not covered by insurance. In addition, it wants to hand out $2 million loans to small businesses and nonprofits (of all sizes) experiencing “cash flow problems.” Farmers and ranchers could likewise qualify for $500,000 in loans to cover production and property losses. Anyone in Sandy’s path can latch on to the FEMA teat. This is not disaster relief but disaster socialism. It is one thing for the government to provide emergency housing, health care and food; it is quite another to compensate victims for every loss. If people knocked down by a storm deserve such federal largesse, why not open the coffers to anyone who suffers a car crash, a death in the family or a broken heart?

Or what if your house burns down? We instinctively know it would be stupid for the government to pay people to rebuild their houses after a fire because then they’ll decide it no longer makes sense to be responsible.

So why, then, does it make sense to subsidize irresponsibility on a broader scale? Particularly when it encourages people to make decisions that could place their lives in danger.

The bottom line is that the federal government shouldn’t take over roles that are better handled by the private sector (such as market-priced homeowner’s insurance) or state and local government (such as emergency response and infrastructure repair and maintenance).

FEMA does more harm than good. It encourages passivity on the part of both people in the private sector and state and local government officials. It’s damaging to the national character when people learn an entitlement mentality and sit around waiting for the federal government to give them freebies.

And how can anyone forget the spectacular incompetence of Louisiana Governor Kathleen Blanco and New Orleans Mayor Ray Nagin during and after Katrina in 2005. Both of them seemed to think it was appropriate to curl up in fetal positions and let Uncle Sam do their jobs.

P.S. I can think of two exceptions to the notion that there should be no federal involvement in disaster relief. First, Washington has a legitimate role in disasters resulting from foreign attack. So some sort of involvement after the 9-11 attacks was appropriate. Second, even a curmudgeon like me wouldn’t get bent out of shape about short-run emergency response. FEMA obviously doesn’t do that, so I’m thinking hypothetically. Perhaps if a hurricane hit a community and a nearby military base had heavy equipment that could help with the immediate clean-up.

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This election season has seen lots of talk (and demagoguery) about whether investors, entrepreneurs, and small business owners should be hit with class-warfare tax policy.

And there’s also been lots of sturm and drang about the best way of averting bankruptcy for Medicare, which is the federal government’s health care program for the elderly.

But there’s been surprisingly little discussion so far about the issue of Medicaid, which is the federal government’s health program for poor people.

I’m not prone to optimism, but I can’t help but wonder if this is because even statists grudgingly accept that the program needs to be reformed.

If so, the right approach is block-granting the program back to the states. Here’s some of what Paul Howard and Russell Sykes had to say about the issue in the Wall Street Journal.

Medicaid, America’s safety-net program for more than 62 million low-income uninsured Americans, is broken. It’s broken at the state level, where program costs are swamping state budgets. It’s broken for federal taxpayers, as Medicaid waste, fraud and abuse drain tens of billions of dollars from federal coffers every year. …The best hope for Medicaid reforms that can improve care for low-income enrollees, reduce fraud, and put the program on a sustainable trajectory is to cap federal spending to the states by using block grants. Block grants would offer states a predictable source of federal funding in return for broad state flexibility in Medicaid administration, benefits and copays.

Howard and Sykes explain that the federalism approach already has been tried with welfare reform, which was very successful.

We know that well-designed block grants can work and attract bipartisan support. The best example is the successful 1996 Temporary Assistance for Needy Families program for welfare reform, which helped move millions of women and children out of poverty and into the workforce. Critics of Medicaid block grants argue that they would leave insufficient funds to cover new state expenses, creating a “race to the bottom” as states slashed funding on services for the poor. But such objections were also raised about block-granting welfare, and they turned out to be wrong.

They also reveal some very useful and interesting information about a test program in Rhode Island that shows the benefits of shifting health care decisions to the state level.

In 2009, Rhode Island accepted a five-year cap on combined state and federal Medicaid spending as part of a waiver from the federal government. ..To date, Rhode Island projects that by various new measures—focusing on community-based care that keeps seniors out of expensive nursing homes, for instance, and medical supervision that can keep children and adults out of emergency rooms—the state has saved $100 million. The flexibility to plan care has also helped reduce its projected Medicaid spending rate to 3% from 8% annually.

It’s worth noting, by the way, that Rhode Island is a very left-leaning state. Indeed, one of the reasons why I’m semi-optimistic about Medicaid reform is that governors and state legislatures – regardless of partisan affiliation – know that the current Medicaid system is unsustainable.

For more information, here’s my video explaining why block grants and federalism are the right way of dealing with Medicaid.

Since I’m not used to being optimistic, let me also give you a nightmare scenario for how this issue could evolve. My greatest fear is that a future president (perhaps Romney!) will decide to impose a value-added tax. In normal circumstances, that might upset state politicians since it would complicate their efforts to impose sales taxes.

But if a future President promised to have the federal government take over 100 percent of Medicaid financing, I suspect state politicians would jump at the trade.

So we would get the worst of all worlds. A giant new tax and more centralization.

P.S. Here’s the full three-part video series on entitlement reform.

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I’ve criticized centralization of power in Washington, and I’ve condemned efforts for global “economic governance.”

The simple message is that bureaucrats shouldn’t try to control our lives, regardless of whether those pencil-pushers reside in Washington or the United Nations.

These are points I made in this interview for Fox Business News.

The specific topic is a boondoggle project know as the White House Rural Council, but we also discuss a troubling U.N. scheme called Agenda 21.

Both are similar in that they are based on the idea that far-away bureaucracies (like this one) should have power over local communities.

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I am automatically suspicious of the veracity of anything I see online, so I don’t necessarily believe this is a real receipt.

But it could be, and that’s what’s disturbing. There are very few restrictions on the use of food stamps, so there’s nothing to stop a recipient from buying porterhouse steaks and lobster.

So what should be done about this type of scam?

Well, I’ve already posted about the growing burden of food stamp dependency.

And I’ve posted about fast food restaurants trying to sign up for the program and the Obama Administration’s crazy policy of bribing states to create more food stamp dependency.

But what got me most upset was the story about college kids mooching off the program.

I remember selling my plasma twice a week while in college, and the $15 I received was enough to buy food for seven days. So I’m not exactly brimming with sympathy for kids who want “high-end organic food” and “roasted rabbit with butter, tarragon, and sweet potatoes.”

The right policy, though, is not to have the federal government tell people what they’re allowed to buy. The right policy is to end the federal government’s involvement in redistribution programs and let states decide who should receive subsidies and what form those handouts should take.

And, most important, let states be responsible for financing those programs.

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As part of his latest “stimulus” scam, President Obama argues that the federal government should spend more money on infrastructure.

Yet there is widespread evidence that politicians use such projects to squander money – often in exchange for contributions from contractors and construction unions.

There’s a very unfortunate example of this phenomenon in my backyard. Fairfax County is part of a $7 billion (that’s not a misprint) project to extend the metro (subway) system to Dulles Airport.

The project is way over budget (which happens 99 percent of the time with government spending projects).

But what’s really remarkable is that supporters of the boondoggle now admit they lied to taxpayers.

What’s noteworthy isn’t the lie. Heck, they always lie and underestimate costs (and then pretend the subsequent cost-overruns were unpredictable and unforeseen).

But not many proponents actually ‘fess up and admit that taxpayers were intentionally deceived.

Here is some of what the DC Examiner said in an editorial denouncing the duplicity and mendacity of the project’s chief bureaucrat.

Metropolitan Washington Airports Authority Chairman Charles Snelling finally admitted that he deliberately misled the public when he stated it was “beyond dispute” that Dulles Rail was “on time and on budget.” Turns out it is neither — a fact Snelling and his fellow MWAA Board members knew all along, stripping the last pretenses of transparency and accountability from one of the largest infrastructure projects in the nation. Snelling later acknowledged that construction managers warned MWAA that the opening of Phase I would be delayed six months and that unexpected expenses were depleting the project’s contingency fund. …Snelling’s less-than-candid assurances were an attempt to deprive taxpayers of a true accounting of this runaway project before November’s county and state elections. But what do you expect when you sever the critical tie between voters and officials with the authority to spend public funds? Unaccountable political hacks like MWAA board members, who cannot be removed — even by the governor of Virginia — have no incentive to spend the people’s tax dollars wisely — or even to tell them the truth, for that matter.
 The answer, at least in part, is to do the opposite of what Obama is proposing. Abolish the Department of Transportation and get the federal government out of the business of funding local infrastructure.

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Running for the U.S. Senate in Massachusetts, Harvard professor and former Obama appointee Elizabeth Warren got her fellow leftists excited when she said, “There is nobody in this country who got rich on his own. Nobody” and added that “…part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along.”

She specifically pointed out that successful people depend on government-provided “public goods” such as roads, police, and education.

Given that the government is doing a terrible job with education, spending huge amounts of money for rather mediocre results, that was probably a foolish addition to her list. Regardless, she’s basically making a point that public goods benefit everybody. And she would like us to think that the “rich” benefit more than the rest of us, so they should pay more.

I had a couple of reactions when this story broke.

1. The rich already do pay a lot more, with the top 10 percent shouldering about 70 percent of the income tax burden. At what point would Ms. Warren be satisfied?

2. If you want a system where people pay proportionately more for public goods, isn’t that an argument for a simple and fair flat tax?

3. People get rich by providing value to the rest of us. Is it wise to subject those people to disproportionate tax penalties when that may discourage them from utilizing their talents?

4. If some people get rich illegitimately because of special handouts and subsidies from politicians, isn’t the solution to get rid of the bad programs rather than indiscriminately penalize all high-income households?

But I didn’t do a blog post, at least back when the story broke, because it seemed those points were rather obvious.

But Professor Russ Roberts of George Mason University wrote a column for yesterday’s Wall Street Journal that is so excellent that it must be shared. Here are some key passages from his WSJ column.

There’s much truth in Ms. Warren’s statement. But if government stuck to what it does fairly well—roads, police, fire and the courts; enforcing contracts that help businesses interact with their customers and other businesses—the federal government wouldn’t need to spend over $3.5 trillion a year, as it now does. And of course it’s state and local governments—and not Washington—that primarily fund police, fire and education, so it’s a bit strange to ask the rich to pay their fair share of federal income taxes because they enjoy police protection.

I especially like how Russ identified the federalism angle, noting that core public goods largely are provided by state and local governments, which makes Ms. Warren’s demand for higher tax rates from Washington even more absurd.

Unfortunately, as Russ notes, most federal spending goes for other purposes.

Much government spending supports activities that are ineffective or even harmful to the economy, often helping the politically powerful at the expense of the rest of us. Wouldn’t it be great for the federal government to stop federal export subsidies, propping up financial institutions, meddling in the education system, and trying to engineer the entire health system from the top down?

And a big part of the problem is that big chunks of the federal budget actually are handouts that benefit the rich.

If the feds stopped all that, Ms. Warren would have a stronger point. We could all feel some gratitude for government’s role in helping us live better lives. All of us, rich and poor, would look at government differently. …Ms. Warren is certainly correct that some rich people aren’t carrying their weight—those who live off the rest of us by twisting the rules of the game in their direction: the sugar farmers who benefit from sugar quotas, the corn farmers who benefit from ethanol subsidies and those sugar quotas, and especially the Wall Street executives who have managed to convince both parties that the survival of their firms, even when they make disastrous loans to each other, benefits the rest of us. …The symbiotic relationship between politicians and the super-rich is destructive of democracy and our economy. Let’s not make it worse. To close our deficit, let’s spend less rather than tax anyone more.

What a good idea: “…spend less rather than tax anyone more.” That’s what this fight is really all about.

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As far as I can tell, everything that Thomas Sowell writes is worth reading, but I especially like how he is so effective at linking his arguments to the underlying principles of a free society.

And when he writes a column focused on those underlying principles, I can’t help but get inspired. He reminds me why I’m at the Cato Institute and why the fight for liberty is so important.

Indeed, what he says about the Constitution in his latest column is so good that I sort of view it as a birthday present for me. But the rest of you should enjoy it as well.

The American Revolution was not simply a rebellion against the King of England, it was a rebellion against being ruled by kings in general. That is why the opening salvo of the American Revolution was called “the shot heard round the world.” Autocratic rulers and their subjects heard that shot — and things that had not been questioned for millennia were now open to challenge. As the generations went by, more and more autocratic governments around the world proved unable to meet that challenge. Some clever people today ask whether the United States has really been “exceptional.” You couldn’t be more exceptional in the 18th century than to create your fundamental document — the Constitution of the United States — by opening with the momentous words, “We the people…” Those three words were a slap in the face to those who thought themselves entitled to rule, and who regarded the people as if they were simply human livestock, destined to be herded and shepherded by their betters. Indeed, to this very day, elites who think that way — and that includes many among the intelligentsia, as well as political messiahs — find the Constitution of the United States a real pain because it stands in the way of their imposing their will and their presumptions on the rest of us. More than a hundred years ago, so-called “Progressives” began a campaign to undermine the Constitution’s strict limitations on government, which stood in the way of self-anointed political crusaders imposing their grand schemes on all the rest of us. That effort to discredit the Constitution continues to this day, and the arguments haven’t really changed much in a hundred years. …A constitution exists to create a framework for government — and the Constitution of the United States tries to keep the government inside that framework. …Does the Constitution matter? If it doesn’t, then your Freedom doesn’t matter.

The column was written to debunk and mock a vacuous piece by the Managing Editor of Time magazine. If today is the opposite of your birthday, and you deserve to suffer for some reason, then you might want to track down and read that article. I wouldn’t recommend that level of masochism.

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This new video from the Center for Freedom and Prosperity explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem.

One of the key observations of the video is that Medicaid block grants would replicate the success of welfare reform. Getting rid of the federal welfare entitlement in the 1990s and shifting the program to the states was a very successful policy, saving billions of dollars for taxpayers and significantly reducing poverty. There is every reason to think ending the Medicaid entitlement will have similar positive results.

Medicaid block grants were included in Congressman Ryan’s budget, so this reform is definitely part of the current fiscal debate. Unfortunately, the Senate apparently is not going to produce any budget, and the White House also has expressed opposition. On the left, reducing dependency is sometimes seen as a bad thing, even though poor people are the biggest victims of big government.

It’s wroth noting that Medicaid reform and Medicare reform often are lumped together, but they are separate policies. Instead of block grants, Medicare reform is based on something akin to vouchers, sort of like the health system available for Members of Congress. This video from last month explains the details.

In closing, I suppose it would be worth mentioning that there are two alternatives to Medicaid and Medicare reform. The first alternative is to do nothing and allow America to become another Greece. The second alternative is to impose bureaucratic restrictions on access to health care – what is colloquially known as the death panel approach. Neither option seems terribly attractive compared to the pro-market reforms discussed above.

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It’s 45 minutes long, but this video from the folks at Reason TV is filled with good information on the foolish ideas of central planners who want to control our transportation.

You’ll learn in the first half of the video, for instance, how high-speed rail is like raising baby chicks (you’ll have to watch to understand).

Around the 25-minute mark, you’ll hear about how the Obama Administration wants to divert revenues from the gas tax to all sorts of schemes (such as mass transit) that violate the user-pays principle.

The video doesn’t address the fundamental issue of whether there should be any federal role in transportation, but it’s a great primer about current issues in transportation policy.

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Greetings from Montreux, Switzerland, on the shores of Lake Geneva. There aren’t many places where palm trees are framed by snow-capped mountains. Heck, even I managed to take a decent photo.

But let’s shift back to the world of public policy. Every time I’m in Switzerland, my admiration for the country increases. Here are five ways Switzerland is better than the United States.

1. The burden of government spending is lower in Switzerland. According to OECD, the public sector consumes only 33.1 percent of economic output in Switzerland, compared to 41.1 percent of GDP in the United States.

2. Switzerland has genuine federalism, with the national government responsible for only about one-third of government spending. The United States used to be like that, but now more than two-thirds of government spending comes from Washington.

3. Because of a belief that individuals have a right to control information about their personal affairs, Switzerland has a strong human rights policy that protects financial privacy. In the United States, the government can look at your bank account and does not even need a search warrant.

4. Switzerland has a positive form of multiculturalism with people living together peacefully notwithstanding different languages and different religions. In the United States, by contrast, the government causes strife and resentment with a system of racial spoils.

5. Gun ownership is pervasive in Switzerland, and the Swiss people value this freedom. Moreover, how can one not admire a nation where all able-bodied males have fully automatic rifles in their homes? To be sure, the United States is very good by world standards in protecting this freedom, so the  Swiss don’t really have an advantage on this issue, but it’s still worth mentioning.

Notwithstanding my admiration for Switzerland, there are five reasons why I don’t plan on expatriating.

1. I’m not rich and don’t particularly see how I will get rich anytime soon. Switzerland is not a cheap place to live.

2. It would be very time-consuming and expensive to go to Georgia Bulldog games, and I doubt the games would be on TV.

3. Speaking of sports, the Swiss share the disturbing European propensity to follow soccer.

4. It’s not warm enough.

5. Even though it’s considered a bit uncouth among some libertarians, I do have certain patriotic impulses. I’m not about to surrender my nation to the plundering thieves from Washington.

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Republicans have been spouting lots of good rhetoric, but what really matters is shrinking the burden of government. One very attractive option is federalism. There are things that perhaps should be done by government, but there is absolutely no reason why they require a remote, expensive, one-size-fits-all, redistributionist, unconstitutional bureaucracy in Washington.

Writing for Real Clear Markets, Diana Furchtgott-Roth of the Hudson Institute uses highway funding as an example of how we can get much better results if Washington butts out and lets states make their own decisions. She doesn’t take this argument to its logical conclusion and urge the dismantling of the Department of Transportation, but I’ll unabashedly take that extra step. Don’t just shut it down. Bury it in a lead-lined coffin, cover it with six feet of concrete, and then add a foot of salt to make sure it doesn’t somehow spring back to life.

By ceasing to authorize expenditures from the Highway Trust Fund, and ending the 18-cent federal gasoline tax, Congress could let the trust fund expire and turn highway spending authority back to the states-along with the ability to levy the fuel tax for their own coffers. Such devolution of responsibility to states would release them from expensive federal laws and regulations associated with current highway spending, such as environmental laws that add years to project construction (remember “shovel-ready” road projects?). Nor would states be bound by Davis-Bacon prevailing-wage requirements and Project Labor Agreements, which require the use of costly union labor on construction projects. …Removing federal restrictions would expand states’ opportunities to raise revenue by imposing highway tolls, which could ease traffic congestion by varying prices depending on when traffic is heavy or light. Such toll roads in southern California have eased congestion and raised revenue for the state.  Each state would be able to fund and build the roads it wants, using a combination of taxes, bond issues, tolls, and public-private partnerships.

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The United States, Canada, and Switzerland are the only developed nations that have some degree of genuine federalism (Germany and Australia don’t count by my standards), and Switzerland is the only country where the central government is smaller than the local/regional governments. This is one of the reasons why Switzerland is so admirable, as partly explained in this Center for Freedom and Prosperity article on the Swiss tax system.

But perhaps other nations are learning from Switzerland’s success. The United Kingdom is devolving some power to Scotland, as reported by the Irish Times. This is just a small step, and it’s unclear how it will work since Scotland leans left and is heavily subsidized by England. But the value of federalism is that jurisdictions compete with each other and cross-regional subsidies are reduced. So if Scotland wants to use its new powers to make the wrong choices, at least only the Scottish people will suffer.

Scotland is to get substantial new powers to set its own income tax rates and win new rights to borrow money in phase two of the devolution of greater autonomy to the Scottish parliament. The measures were described by Scottish secretary Michael Moore as the most significant transfer of financial power out of London since the formation of the UK more than 300 years ago, making Holyrood more accountable to voters. …The proposals form the centrepiece of a new Scotland Bill drafted by the UK government, which will allow the Scottish government to increase or cut income tax rates by up to 50 per cent for basic rate taxpayers, and by 20 per cent at the highest rate. The measures also go further than expected by offering the Scottish government much greater borrowing powers, and more quickly, than originally recommended by a cross-party commission on devolution chaired by Kenneth Calman. …In addition, Holyrood will be allowed to introduce new, Scotland-only taxes, with Westminster’s approval, and have control over stamp duty and landfill tax. In all, the powers will give Holyrood control over about £12 billion or 35 per cent of its current spending: its block grant from the treasury, worth £29 billion a year, will be cut by an equal amount.

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Michelle Obama has a column in the Washington Post about the supposed wonders of giving schools a bigger role in the feeding of children. My first reaction is to roll my eyes. I understand that every First Lady picks a pet cause. I just wish they found causes that didn’t involve bigger government. My second reaction is that there should be zero federal government involvement in education, much less micro-managing menus in local schools. My third reaction is that parents should be in charge of the feeding of children. And my final reaction is that if the nanny-state nitwits in Washington really want to deal with childhood obesity, they should outlaw video games, computers, and TVs. I suspect those are the main culprits causing chubbier kids. But please don’t share this blog post with any politicians. They might actually propose such a law. As this excerpt indicates, the First Lady already is pushing a bad idea, so we don’t want to give the crowd in Washington any ideas to make the bill even worse.
The Child Nutrition Bill working its way through Congress has support from both Democrats and Republicans. This groundbreaking legislation will bring fundamental change to schools and improve the food options available to our children. …the bill will make it easier for the tens of millions of children who participate in the National School Lunch Program and the School Breakfast Program — and many others who are eligible but not enrolled — to get the nutritious meals they need to do their best. It will set higher nutritional standards for school meals by requiring more fruits, vegetables and whole grains while reducing fat and salt. It will offer rewards to schools that meet those standards. And it will help eliminate junk food from vending machines and a la carte lines — a major step that is supported by parents, health-experts, and many in the food and beverage industry. …That’s why it is so important that Congress pass this bill as soon as possible. We owe it to the children who aren’t reaching their potential because they’re not getting the nutrition they need during the day. We owe it to the parents who are working to keep their families healthy and looking for a little support along the way. We owe it to the schools that are trying to make progress but don’t have the resources they need. And we owe it to our country — because our prosperity depends on the health and vitality of the next generation.

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This story from Business Week warmed my heart. Switzerland’s cantons are competing to create better tax policy, and this is attracting companies seeking to escape the kleptocracies elsewhere in Europe. This shows the value of tax competition (imagine how bad taxes would be in Germany and France if politicians in those nations didn’t have to worry about taxpayers escaping over the border) and the benefits of federalism (unlike the United States, Switzerland has not made the mistake of letting the central government becoming the dominant force in fiscal policy).

“Low corporate taxes will help Switzerland attract business, but it’s also creating tension as European governments seek revenue to plug their fiscal deficits.” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. Switzerland reported a fiscal surplus last year, and cantons from Zurich to Schwyz are lowering taxes. “There is still a clear downward trend in taxation,” said Martin Eichler, head of research at BakBasel, an economic consulting firm in Basel, Switzerland. “There is pressure to be attractive to companies and the cantons are saying that if we have to save somewhere, then it won’t be on tax.” Swiss corporate tax rates, including a federal rate of 8.5 percent, range from 11.8 percent in the town of Pfaeffikon in Schwyz to 24.2 percent in Geneva, according to tax consultant Mattig-Suter & Partner. That compares with a corporate tax rate of 28 percent in the U.K. and 35 percent in the U.S. Vaud, running east along the lake from Geneva to Montreux, persuaded Shire Plc to set up an office last month with the help of tax relief on its corporate rate of 23.5 percent, said Eric Maire, the canton’s senior project director for economic promotion. That follows the March decision of Ineos Group Holdings Plc to relocate from its U.K. base. …Tax increases in the U.K. played a “key role” in persuading firms such as BlueCrest Capital Management and Brevan Howard Asset Management LLP to shift part of their London-based operations to Geneva, said Loeffler. Smaller cantons want to emulate Zug, which used a tax rate of 15.8 percent to more than double its number of registered companies to 29,134 since 1990. The canton is home to miner Xstrata Plc and Transocean Ltd., the world’s largest offshore oil and gas driller.

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I’m in Switzerland for a couple of speeches in Geneva and one speech in Zurich. I’d like to say I’m also visiting my money, but that would only be true if I had enough money for a Swiss account. Alas.

Switzerland is an admirable nation for many reasons, especially its strong human rights policy in defense of financial privacy. But I also admire its fealty to federalism. Indeed, unlike the United States, it has largely kept the central government from becoming a dominant force in the nation’s fiscal policy. As this study from the Center for Freedom and Prosperity (authored by a Swiss expert) explains, more than two-thirds of taxing and spending takes place at the canton and municipal level. In America, by contrast, the federal government now dominates, with two-thirds of taxing and spending coming from Washington.

One final observation. I’m staying in what might be called the United Nations district of Geneva, and one can’t help but notice all the urbane foreigners – particularly from the developing world – wandering the town and patronizing the tony restaurants. Maybe I’m just a cranky libertarian, but I can’t stop thinking about the tremendous misallocation of human capital this represents (not to mention the huge waste of money). Many of these people are probably the “best and brightest” from their various homelands, and they presumably could contribute to their nations’ prosperity by being back home doing something productive. But thanks to the proliferation of international bureaucracies, few of which can make even an implausible claim of doing anything worthwhile, these people are net liabilities rather than net assets.

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Bush was a big spender. Obama is a big spender. Bush supported bailouts. Obama supports bailouts. Bush created a new healthcare entitlement. Obama is trying to create a new healthcare entitlement. But President Obama may not be a lost cause. According to the Associated Press, the Administration is reversing the old policy of persecuting people who use or provide medical marijuana in states where it is legal. This is a victory for federalism and common sense. People should be free to make dumb decisions with their own lives, and prohibition is both futile and expensive. And there certainly is no reason for the federal government to be involved:

Federal drug agents won’t pursue pot-smoking patients or their sanctioned suppliers in states that allow medical marijuana, under new legal guidelines to be issued Monday by the Obama administration. Two Justice Department officials described the new policy to The Associated Press, saying prosecutors will be told it is not a good use of their time to arrest people who use or provide medical marijuana in strict compliance with state law. …The new policy is a significant departure from the Bush administration, which insisted it would continue to enforce federal anti-pot laws regardless of state codes. …A three-page memo spelling out the policy is expected to be sent Monday to federal prosecutors in the 14 states, and also to top officials at the FBI and Drug Enforcement Administration. The memo, the officials said, emphasizes that prosecutors have wide discretion in choosing which cases to pursue, and says it is not a good use of federal manpower to prosecute those who are without a doubt in compliance with state law.

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