Friday, March 13, 2009

The Worst of Both Worlds

A conservative mantra is that “the government is inefficient”. By looking at government services currently being provided in the U.S., it’s hard not to agree. However, there are two different questions you have to ask yourself:

1. is the government inefficient?, and, 2. can the government ever be efficient?

I agree that the U.S. government is inefficient, but I don’t believe that the U.S. government can never be efficient. I believe that that depends on how the government is set up.

The U.S. system of government is crippled by the conflicts between state-level and federal power, and such conflicts tend to deteriorate a country more and more as time goes by. Two good current examples of this are Spain and Belgium, where regionalism takes away precious resources while sowing the seeds of division, further feeding the vicious cycle.

Sometimes there’s a legitimate case to be made for splitting a country into several parts, and a lot of times things can work out for the better, as they did when Czechoslovakia split.

In order to eliminate tensions between regional and national interests inside a country, there are traditionally two approaches: 1. create a unitary government with a centralized power structure, or 2. create a federation with independent member states.

In the United States, the member states are not exactly independent, most importantly not in the economic sense. In the current structure, individual states and their inhabitants are having to pay so much money to the federal government that they would be completely unable to provide for their individual needs without the federal government providing services.

To simplify a bit, in a unitary government, the central government has all the money and provides all the services. In a federation with independent member states, the individual member states have almost all the money and provide all government services for themselves.

I will provide three examples of three different governmental structures, and weigh pros and cons in terms of regional interests and the allocation of money at different levels of government.

The first example is Sweden, which has a unitary government. The central, national government, has virtually all the economic resources and provides almost all the government services. Some services are provided by regional authorities, but are still paid by the national government. A system like this one is highly efficient for creating things like national health care, national infrastructure, guaranteed pensions, free university education etc.

Pro: Efficient for achieving common, national goals

Con: Not enough economic resources in regions to achieve regional goals

The second example is the EU, which is a federation with independent member states (it’s called a “union”, but legally speaking it should be called a federation). The member states pay yearly fees to the EU in order to fund some common initiatives, such as border control, crisis funds and trade initiatives, but the vast majority of the member’s economic resources remain with the individual countries. Virtually all government services are still provided by the individual member states (of which Sweden is one).

Although there are many people and organizations across the EU who share common goals, the framework for achieving those goals are not there in the EU. For instance, there is no “EU tax”, which would be an obvious step towards achieving common goals across the federation.

Pro: Enough money remains in the individual member states for those states to be able to achieve their own, regional goals.

Con: The federation does not have enough economic resources to achieve goals that are shared across the EU.

The third example is the United States, which does not fit in to any of the descriptions above, and is hence a hybrid system where the federal government and the states share the economic resources, and also share the provision of various government services in the same way.

The EU does not have a federal income tax, but the U.S. does. Most unitary governments have no local tax (or the local tax is almost negligible), but the U.S. has sizeable state and local taxes.

So, in the U.S., the states don’t have enough money to be independent of the federal government, and the federal government does not have enough money to achieve goals shared by all states.

Con: Not enough economic resources in regions to achieve regional goals

Con: The federation does not have enough economic resources to achieve goals that are shared across the U.S.

The U.S. system picks only the cons in the two alternative forms of government, and is hence the worst of both worlds. There is simply not enough tax money coming in on either level of government for U.S. citizens in general to be able to enjoy a standard of living on par with that of other industrialized countries.

In addition to this, the U.S. has a non-progressive tax system, which means that taxes on low-income people are comparatively very high, and taxes on high-income people are comparatively very low.

High-income people do not need many government services, but because low-income people are taxed at such a high rate, these people are in need of even more government services than they would have been under a progressive tax system. However, they cannot receive such services because neither the federal government, nor the states have the money to pay for them.

I believe that the U.S. system of government is a recipe for inefficiency and division, and that is also how many U.S. citizens see their own country: as an inefficient and divided country.

The U.S. should seriously consider becoming more like one of the two first examples I gave: either a unitary government or a loose federation of truly independent states that can provide for their own needs as they see fit.

Moreover, I advise that the winner-takes-all voting system should be destroyed.

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