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Essay
February 9, 2012

Kling, Greve, Salam Discuss Fiscal Federalism's Failure

Richard M. Reinsch II

Arnold Kling, blogger at Liberty Fund’s EconLog, posted the following interview with Michael Greve on fiscal federalism and other insights from his upcoming book, The Upside-Down Constitution. Greve’s thoughts on this subject can also be read in the three posts he did on fiscal federalism recently.

Kling writes:

Below is an excerpt from a video conference with Michael Greve, Reihan Salam, and me on the problems with fiscal federalism in practice. The full half-hour video is here. And, yes, I also created a podcast.

It is a good discussion, but quite depressing. A naive view of federalism is that it encourages robust competition at the state and local level. Unfortunately, the reality is that competition gets suppressed, and the incentives are rigged in favor of government expansion.

Related
Jan 26, 2012

The Debt Trap, Part (1)

Michael S. Greve

President Obama didn’t discuss the nation’s massive, swelling debt in his State of the Union address. Mitch Daniels did, and good for him: the flood of red ink really is the Niagara. Our accelerating drift toard the cliff, moreover, entails not only fiscal and economic but also institutional and constitutional consequences of grave import. State and local debts are a comparatively small tributary to the great stream, but they illustrate the point. State and local debts are composed of about upwards of $4 trillion in unfunded pension obligations; upwards of a half-trillion in other pension benefit obligations (mostly for health benefits), also unfunded; and about $2.9 trillion in municipal (state and local bonds). These debts will not be paid (at least not in real dollars), because they cannot be paid. The question is how and to whom our federal system is going to administer the haircut—and what changes it is likely to undergo in the process. Today’s post deals with the background causes and conditions of state debt; tomorrow’s, with federal bailouts; Monday’s, with fiscal federalism’s future. (It’s not the EU. It’s Argentina.) Read more

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