Alexander Hamilton

Alexander Hamilton

By: Brian Sikma

When the economy started to slide towards recession, the reaction of the federal government was bold, decisive, and misguided. When investment banks began teetering on the brink of viability the federal government stepped in, first serving as a sort of “organizer” for bank mergers, then dictating the terms of the buyouts, and then simply becoming part owners in some of the nation’s largest financial institutions. As markets fell through a sort of yo-yo motion of two steps back, one step forward, it was only a matter of time before other industries felt the squeeze of a contracting economy.

The next benefactors of informal nationalization were General Motors and Chrysler Corporation, two of the nation’s Big Three automakers that found themselves in dire financial straights. Since Congress, perhaps in a rare bout of sanity, declined to give the executive branch the tools it needed to bolster automakers who were finally paying the price of extravagant union compensation contracts (among other things), the President and Treasury Secretary simply took some of the money they already had and handed it to the two auto manufacturers. Merry Christmas.

With the precedent for receiving federal money now strongly biased in favor of those who can successfully claim they are “too big to fail”, we will probably continue to see more industries make their way to Washington to plead for a government dole. Already it appears that the commercial real estate industry will be in line soon pleading for government support as more and more retailers close down and banks become wary of putting their money in commercial real estate investments.

Although the examples of private industry surrendering to quasi-government ownership, or at least to increased government interference, are disturbing, the recent news that states are now looking to the federal government for help in overcoming budget deficits is downright alarming. The free market has been an important institution in American self-government and its centrality should not be underestimated, but when states seek to obtain handouts from the federal government another important feature of our self-government is assaulted: the concept of federalism. Federal encroachment on either the free market or federalism would be bad enough, but when one follows right after the other in such quick succession a cry of alarm should be raised.

So far five Democrat governors have issued a joint request to the Obama transition team urging them to pressure Congress for $1 trillion dollars to be spent over two years in support of state programs that are outpacing state income. Programs that are contributing to these budget deficits include state pension funds, unemployment benefits, and highway projects. While the federal government has been involved in funding federal projects that are similar to these, it has not been the entity that insures that these state obligations are fulfilled.

The concept of federalism is not just an intellectual concept that makes for good government. According to the Constitution of the United States, it is the law of the land. Our founding fathers set up a system of government that has at its heart checks and balances. At the federal level power and responsibility was split between three branches. Acting as a check on the combined efforts of the Congress, the Federal Judiciary, and the Presidency, stand the states. The states are not creations of convenience, they are institutions of necessity because they are responsible for the myriad of domestic duties not assigned to the federal government.

The assault on federalism is not new. From the comprehensive and sweeping policy proposals of FDR’s “New Deal” to LBJ’s “Great Society” and the more specific policies such as No Child Left Behind, states have seen their autonomy and importance in domestic policy diminish. All too often states are now administrators of federal programs and not the instigators of their own efforts. This is not what the founding fathers had in mind.

The role of states was a subject of heated debate among the early political leaders of our country. On the one side men like Thomas Jefferson argued for more decentralized government, on the other side men such as Alexander Hamilton made the case for a strong union with an equally strong national government. But even the most forceful proponents of a national government understood that states have a very important role to play. Hamilton made the case for federalism when he said:

“This balance between the National and State governments ought to be dwelt on with peculiar attention, as it is of the utmost importance. It forms a double security to the people. If one encroaches on their rights they will find a powerful protection in the other. Indeed, they will both be prevented from overpassing their constitutional limits by a certain rivalship, which will ever subsist between them”

Hamilton understood that what was at stake in the concept of federalism was nothing short of the protection of freedom. By turning to the federal government for help with budget deficits, this “Gang of 5” governors is turning the idea of federalism on its head. The “double security” offered to each American by the existence of both a national and state government will be, for all intents and purposes, removed if we begin to accept the practice of Washington’s bailout of states in fiscal straights.

Federal money always comes with strings attached, and in many ways this should be the case since it is important to make sure that federal tax dollars are spent wisely. When you see earmarks going to support ventures like the World Toilet Summit you sometimes wish more strings were attached. But for states these strings signal the end of their fiscal independence. Instead of opting for some temporary relief with long term harmful side affects, governors and legislators of states facing budget problems should take their medicine now and cut spending.

The economy may be a national issue and it may indeed be causing revenue problems for states, but every budget problem, and every revenue problem, is really a spending problem. Shifting a state’s reliance on its own taxes to fund its own operation to a hybrid of state and federally generated revenue is as unsustainable as the level of state spending that caused these deficits.

Turning down requests from any one of the 44 states facing budget shortfalls this year is not irresponsible on the part of Washington. Governors and legislators should choose to make their own decisions about solving their own state’s deficits this year. This is not about dooming state governments to tough budget decisions, this is about federalism, and federalism is about freedom.