The USA’s Federal System of State Redistribution – Why it Keeps us From Turning European

As the Euro crisis has spread across Europe and resulted in depression in many of the world’s largest countries, analysts, pundits and investors continue to be amazed that the USA has avoided a similar fate.  After all, the USA and Europe are extremely similar.  They are both single currency monetary systems designed to create an integrated medium of exchange that increases economic efficiencies.  So the states in the USA are analogous to the countries in Europe.  The difference is that the USA has political unity and a centrally unified institutional design whereas Europe has a disjointed system in which they are not politically unified and the monetary system remains incomplete without a central treasury.

The lack of a central treasury is crucial in understanding why Europe’s monetary system is flawed.  As users of the same currency there is no floating exchange rate to help rebalance any trade imbalances that might arise over time.  But there is also no central treasury to help redistribute funds to help rectify some of these imbalances.  That might sound counterintuitive to some, but a brief review of the federal system in the USA makes this clearer.

The USA also has severe trade imbalances within its borders that result in major economic imbalances.  And the states are all currency users.  If these imbalances were allowed to persist without any outside intervention the lack of a floating exchange rate would result in inevitable solvency crises at the state level as the state finances became unsustainable.  But the USA has a unique arrangement whereby they take from the rich and redistribute to the poor states.  This federal sharing plan helps to keep the poor states from becoming bankrupted over time as they receive federal funds to help maintain their balanced budget amendment and remain solvent.

You can better see this through a recent report from CNBC or this report from the Economist.   The states who pay the most into the system are New York, New Jersey, Illinois, California and Texas.  As a percentage of GDP Delaware, New Jersey, Minnesota and Illinois pay the most into the system.  That is, these states receive far less in federal aid than they pay into the overall pot.  Interestingly, the states who take the most and pay the least in are “red states” or states where we tend to hear about the evils of “redistribution”.  Florida, Louisiana, South Carolina, Hawaii and Virginia receive the most in federal funding when compared to their tax receipts.

I don’t intend to make a political argument here though it might come as such.  Rather, I intend to teach a lesson about the institutional design of our monetary system.  We have a system that redistributes in a manner that helps sustain the stability of the system over time.  Because the Federal government can never “run out of money” it is able to serve as a facilitating and supporting feature of the overall system.  And it does this, in part, by redistributing funds from the wealthy states to the poorer states.  Europe lacks this federal system.  And because of this, they have solvency crises and depressionary conditions in many countries.  The USA has implemented Europe’s necessary fix.  And because of this the USA has steered clear of massive state solvency crises that would inevitably drive the country into a much deeper hole.  So next time you hear your local politician decrying federal redistribution you might inform them that redistribution at the federal level has actually been an enormously positive feature of our monetary system.

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • RoryBellows

    But SOSHULISM! Good post, this concept of imbalances can’t be reiterated enough.

  • Frederick

    Brilliantly succinct.

  • Tom Brown

    Nice article. The “redistribution” complaint is one of the silliest I’ve ever heard! … “Keep your dirty ‘redistributionist’ hands off my medicare, you commie devils!!!”

  • Joe in Accounting

    Cullen,

    So what are us NJ/CA/IL residents to do? We’ve been laying off teachers, police, firemen, cutting services and raises taxes just like everyone else. The federal government may not be able to go broke, but it’s citizens certainly can. My rep sends a newsletter saying how he’s working to cut the deficit for my benefit???

  • Cowpoke

    24/7 Wall St, has a good point to keep in mind as well:

    “A review of the data shows that some very large programs, including defense spending, Medicare and Medicaid, Social Security, and farm subsidies, had major effects on how much money each state received, to the extent that individuals get far more per person than in other states. In some cases, it was several programs that affected the total amount the government spent on the state per capita, but in others, it may have been just one program.”
    http://247wallst.com/2012/08/03/states-that-get-the-most-federal-money/#ixzz27nH70aj8

    So if Europe would just pay for everyones ss security defense, Farmer’s and Hospitalization, they could be just like us..

  • Nils

    The US system is hardly unique. The Federal Republic of Germany has a similar system, where states like Hamburg, Baden-Württemberg and Bayern (Bavaria) are net payers and the other states (notably Berlin) are net receivers of funds.

  • Johnny Evers

    Europe, being decentralized, is actually in better condition than the United States. An environment in which entities fail early and adapt is stronger than an environment in which pressure builds and builds until the whole edifice collpases.
    In Europe, the healthy and adaptable states will do well; the weak states, like Greece, will ‘fail’ and be forced to adopt healthier ways of financing spending. Paradoxically, it is failure that is the key to good health. Iceland failed but is now healthy. Ireland was not allowed to fail and its longterm prospects are poor.
    The U.S., precisely because it is too big to fail, is more fragile and the pressure on the system is building.

  • http://www.pragcap.com Cullen Roche

    I wonder if you would say that if you were one of the 25% of the unemployed in Greece or Spain. It’s easy to say someone is “better off” when you’re living in a country where 92% of the population is working. Try living in a developed country where one quarter of the population is living through a depression. Then tell me you’re “better off”. I’m sorry, but saying that Europe is “better off” is just patently absurd. But it’s easy to say that from your vantage point given that your state has a near nation low UE rate of 7%. It must be nice living in a stable country. I know I sure don’t take it for granted….

  • Johnny Evers

    Spain’s unemployment rate is irrelevant to the point I was making about fragility and creativie destruction.
    Also, there is nothing stable about living on borrowed money.

  • Bond Vigilante

    If the FED can’t run “out of money” then the ECB can’t run out of money either. And the ECB, like the FED, can dole out that money to all the member states of the monetairy union.

    The moment the US taxsystem breaks down then the US, in it current form, toast as well. It’s my firm believe that a number of states (E.g. Alaska, Texas) in the end WILL secede from the union called USA.

  • Old Dog

    Cullen…

    So how about one world government and one world currency?

    Isn’t this the logical extension of this argument?

  • Tom Brown

    Cullen, what Mr. Evers means I think is that the survivors will be better off. Once the useless people starve to death or die of diseases, those who survive will be proven adapters, ready and willing to work for pennies a day! Then Spain and Greece will have won the race to the bottom, and will be ready foreign investment!

  • http://www.pragcap.com Cullen Roche

    Only logical if you have one world that is unified. :-) Not happening any lifetime soon.

  • http://www.pragcap.com Cullen Roche

    The useless? Is 25% of Spain “useless”. I mean, I get the “cut the fat” mentality to some degree, but this is like cutting off your arms and saying “look guys! I lost 40 pounds!”

  • Pierce Inverarity

    Borrowing money from WHOM? Money is a social construct, it doesn’t exist outside of society.

  • Pierce Inverarity

    You’re right, the ECB can’t run out of money, logically speaking. The problem is with the law.

  • Tom Brown

    Kidding! That was an attempt at sarcasm!

  • Johnny Evers

    Hello, Tom — Spain has more than enough resources and talent to provide for its citizens. Putting them further in hock to the banking system only puts a drag on their economy.
    +1 on the Old Dog below. If German citizens need to finance Spaniards, why doesn’t the U.S. send payments to Mexico.

  • http://www.pragcap.com Cullen Roche

    Oops. Sorry. Press the sarcasm button on your computer next time. :-)

  • Tom Brown

    Funny how the Germans seem to have completely forgotten 1948 when the entire world FORGAVE ALL THE GERMAN DEBTS THEY RAN UP MAKING WAR ON THE REST OF THE WORLD!!

    … thus avoiding a second Weimar Republic and a return to hyperinflation, a renewed round of political extremism, and more war in Europe. In fact, I believe they called that the “German Miracle” or something like that… ushering in a period of unprecedented German economic growth and prosperity. I wonder if they teach German school children about that these days in their history lessons?

    I don’t propose putting Spain further in hock to the banking system, BTW. I agree with you on that point. I think, however, that forcing Spain, Greece, Italy, Portugal, etc. to borrow more to pay off debts they’ll NEVER pay off is just a bad idea. Perhaps, the Germans, if they want those Southern European countries to remain in Euroland, might be better off writing down those debts. Forcing austerity on them, putting 50% of Spain’s young people out of work, forcing them to close government services and to sell of national assets (roads, water systems, etc)… that’s not going to make those economies more efficient. That’s just going to build resentment and force people to emigrate. It’s not going to drive DOWN the cost of doing business in those countries and ultimately help their economies, and thus improve the market for German goods.

  • Colin, S.Toe

    That may be precisely what is required (in a highly limited and ‘federalized’ form) to sustain a truly global economic and financial system. This may depend on both technological and social/political breakthroughs that better not be too long in coming.

    Granted that at this point, I consider it more likely that with increasing effects of resource limits and climate change, there will be growing reversion to regional and local economies.

    You may have to pick between those two alternatives.

  • Colin, S.Toe

    Or some combination of the two.

    (Any raising in ca 1940 of the prospect of serious discussion of European political union within a half century or so, would have been received with incredulity.)

  • Johnny Evers

    Defaults are a good option to consider, imo.
    I don’t buy the notion that Germany is forcing austerity on anybody. It’s simplistic, imo, to suggest that giving Greece and Spain more access to cheap loans (that as you say, will never be paid off, so that is …. drum roll, please, printing) does anything to restore economic growth.
    And frankly it reduces the debate to when you say that people who oppose money printing are heartless bastards who want people to stand in breadlines.

  • The Dork of Cork

    Johnny does not get it.
    These are not Nation states…..not since the mid 1980s at least.

    Germany did not and continues to not spend much on internal productive capacity….its a colony like the more stricken members of this Euro prison – its just that most Germans seem to not grasp this concept , they are much like John in fact.
    Their heads are full of Banking Memes.

    A country built on international trade but with a funny sense of Nationhood…..Germany
    Look One Euro countries hinterland does not trade with another in Europe , capital flows far outstrip trade flows which are themselves irrational.
    Spain is a credit hyperinflated disaster but they really need very little heating oil in Seville when it really comes down to basics.

    If you live in Germany however you need to keep warm in Winter or you are likely to die unless you are very fit..
    If these sad failed banking slave poltical units somehow seperate you will find the PIigs in a better place then the Core.

    Our function(The PIigs) for these past few years has been to sustain the core , it has failed because the Core is merely better at high quality Grot production.
    But when it comes down to it you need Food , Heat & shelter – you don’t realy need a BMW.

  • Don Levit

    Bond Vigilante:
    I am in agreement with you.
    I don’t think it takes Harvard-trained economists to explain the nuances as to why The U.S. has seemed to escape hard times while many European nations are struggling.
    The so-called fact that the U.S. can never run out of money is a moral hazard.
    It encourages people like Bernanke to simply print money out of thin air, and provides an enormous amount of power to a very few people, which, I believe is a dangerous situation.
    That is, it provides power, if in fact, the ability to never run out of money, is really a long-term, sustainable advantage.
    From an insurance perspective, we will have with the ACA unlimited amounts of annual and lifetine benefits.
    This type of similar moral hazard will drive premiums ever upwards as people take advantage of the “free” benefits.
    Every act we take has repercussions, both positive and negative. That goes for printing money with an unlimited ability to do so. As Cullen suggests, it may provide the U.S. an upside the Europeans may not have.
    It also provides a downside, which seems to garner little of people’s attention on this blog, at least those who are fans of MMT.
    Don Levit

  • http://www.pragcap.com Cullen Roche

    Don,

    If you think this is an MMT fan club you might want to familiarize yourself with how our theory (Monetary Realism – MR) is vastly different from MMT.

    http://pragcap.com/mmt-critique

  • The Dork of Cork

    Any of yee guys think that without the Vassal Euro states not consuming the Sov states would be in much Bigger trouble ?

    From a Physical economy perspective the Real problem is the UK (declining North Sea) post Big bang……
    They wasted all those BTUs on Grot during the loads of money era – they now need to externalise those losses so that they can continue to lead the lives they have grown accustomed.

    It has a very dramatic current account defecit.
    •The United Kingdom’s (UK) current account deficit was £20.8 billion in the second quarter of 2012, up from a revised deficit of £15.4 billion in the previous quarter.
    •The trade deficit widened to £10.1 billion in the second quarter of 2012, up from £8.1 billion in the previous quarter.
    •The income deficit widened to £5.2 billion, up from £1.9 billion in the first quarter of 2012.
    •The financial account recorded net inward investment of £11.1 billion during the second quarter of 2012.
    •The international investment position recorded UK net liabilities of £325.8 billion at the end of the second quarter of 2012
    Now that the city cannot run oil through the PIigs and get a yield off the waste production it must try to push these sad little countries into current account surplus.
    Ireland has posted its biggest current account surplus ever and even Greece acheived a current surplus in July.
    I am all in favour of Fiat currencies withen the confines of defined political borders but its the banks which provide the mechanism of final settlement….they have engineered a system where there cannot be final settlement.

    All Countries must always be a state of permanent Bankruptcy so that the city can live the life it has grown accustomed to.
    Now all cities must always be in trade defecit to their hinterland but if they cannot come up with any worthwhile ideas there is no need for cities.
    I imagine This was the reason for the Breakdown of Roman Rule.
    Eventually People embraced the Dark ages as at least they could get on with their short brutish lives.

    Thinking of investing in a Iron Age hill fort ( the iron age was late to Ireland not getting here fully until the Dark Ages….despite the destruction of the landscape many remain in Ireland.

  • Don Levit

    Cullen:
    I may have got the theory incorrect, but how might you (and others) respond to the rest of my comment.
    Don’t you think every act has a positive and negative effect?
    Don Levit

  • Cowpoke

    I kinda agree with your “Defaults are a good option to consider” thought.
    Iceland does come to mind and like what ed H points out: “First, a team of lawyers was put to work to ensure that losses in the banks were not absorbed by the public sector. In the end, the public sector did of course have to step in and ensure the new banks had adequate capital, but it was insulated from vast private sector losses. This was a major achievement.”
    http://www.creditwritedowns.com/2011/10/lessons-from-iceland.html

    So this makes sense to me, why waste what ya have just to tread water, when you can use that resource to start fresh and clean.

  • hangemhi

    they’d respond by telling you to read cullen’s link so that everyone can stop answering the same tired nonsense from people who visit this blog to print their biases without actually trying to understand what their “opponent” is saying

    as for your ACA rant – how is it that countries with single payer systems spend far less than us and yield far better results? Even Romney noticed Israel’s 8% of GDP – despite their so-called moral hazard

  • Tom

    Question

    It has been stated many times that Greece has been in default about half their history of time, almost all of that time which it has had its own currency. Now obviously they have issues due to having a euro versus a drachma. Did they just print too much versus their productive capacity each time in their long history, causing these defaults because otherwise they would not need to default as a single payer currency?

  • Wantingtoretire

    OMG…………it is so depressing reading you guys. You are deep in the detail and just cannot see over the hill. Stop thinking about accounting. The US is part of the global economy now but with so many isolationist attitudes you do not see it.

    The US is the most powerful nation on the Earth. This means it has bargaining power. It has it today. Anything that reduces that bargaining power is the wrong direction.

  • The Dork of Cork

    UK Current account Net Q2 2012.

    Trade in Goods : £ -28.1 Billion ( largest Quarterly deficit ever recorded)
    Trade in Services : £+ 17.9
    Income : £ -5.2 Billion (largest Quarterly deficit ever recorded)
    Transfers : £ -5.5 Billion

    Current balance £ -20.8 Billion (largest deficit ever recorded)

    Ireland posted its largest current account surplus during Q2 at 3.235 billion with even Greece posting a surplus in July.

    Can we make this very simple connection.
    I have no problem with full Fiat currencies operating withen national spheres with a clear politic but do we have a major final settlement problem between nations and former nations ?

  • Cowpoke

    So Wantingtoretire, are you saying that The united States is a light on the hill…Kinda exceptional, or here by Divine Provedence?
    If so, i tend to agree..

  • PeterP

    To me this picture is worth a 1000 words:

    http://www.economist.com/blogs/dailychart/2011/08/americas-fiscal-union

    The US refluxes the money back into poor states, they don’t need to borrow it like Greece, they are mailed a check!

  • http://www.pragcap.com Cullen Roche

    Exactly!

  • Bond Vigilante

    The ECB and the FED are both banks who can create “money out of thin air”. But they need reserves and those reserves consist of some sort of collateral. But when that collateral (e.g. US T-bonds) starts to stink then the FED and ECB are both “burned toast”. That’s the crucial thing that a lot of folks (including the MR folks) fail to understand.

    Then central banks will resort to confiscating gold in order restore faith in the currency.

  • Andrew P

    The USA also has completely free movement of people between States. The EU doesn’t. Their Shenzhen Treaty is a half-ass imitation of the real thing. Migration is a very important rebalancing mechanism in addition to Federal transfers, and it should not be underestimated. True political unity is an essential precondition for free migration of people.

  • Bond Vigilante

    Free movement of people ??? If a person wants to move out of the state of New Jersey then he/she must pay a (high) exit tax. Free movement of people ???

  • http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation Jason H

    FYI, the FEDeral Reserve does not need actual reserves to create reserve.. according to it’s charter as well as Congressional testimony by Federal Reserve presidents, the Federal Reserve has unlimited power to create reserves (into perpetuity)..

    the Fed requires reserves of private banks in the system, but NOT the central bank itself

  • http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation Jason H

    He’s talking about not needing visas/work visas/immigration papers, etc

    For example, Estonia & Latvia suffered severe austerity & worse economy & skyrocketing unemployment that a huge population (mostly unemployed/laid off) emigrated out of the country to other countries…

    the result is that Latvia/Estonia has “lower” unemployment on paper when in reality nothing improved except that the unemployed self-deported
    yet
    that doens’t stop rightwing newspapers/media from crowing about how Estonia/Latvia is now “improving” after worsening due to their austerity (19% to 21% unemployment)

  • http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation Jason H

    the FED can’t run out of money because by law & it’s charter states that:
    1) the Federal Reserve president/chairman & board of governors are replaceable & appointed every 4 yrs by the US President
    &

    2) it’s charter explicitly states that should there ever be a conflict between the Federal Reserve & government, the Federal Reserve has to defer to & obey the US Secretary of the Treasury (who is appointed by & replaceable by the President at any time)

    3) The Federal Reserve’s charter (which now includes full-employment & price stability) can be amended & changed by Congress & signed by the President

    The upshot is that ultimately, the Federal Reserve & all it’s money-printing powers is ultimately subservient to the Presidential administration and there is NO limit to deficit spending (aside from possible inflation after reaching full employment or supply shock, at which point the deficit spending can be decreased)

    The EuroCentral bank was a bad idea that was devised by rightwing bankers to DIVORCE monetary policy & control from democratic governments into creating a banking oligarchy that would not be under the control of democratic governments like the US system

    The EuroCentral is LIMITED by it’s own charter to 3% deficit spending of it’s member countries & their board of governors is NOT subservient to any one country’s prime minister/president —

    the EuroCentral bank doesn’t have to answer to any one country’s president like in the US, does NOT have to defer to some SEcretary of the TREasury, & it takes agreement of most if not all major countries (Germany, FRance, etc) to force the EuroCentral bank to fund deficit spending ..it seems the EuroCentral Bank actually acts like a regular private bank & actually needs reserves & funding from it’s member countries, unlike the US Federal Reserve

  • Don Levit

    Well, the chart does look like the wealthier states are supporting the poorer states. And, that is a good thing. It does promote a sense of solidarity, that the more fortunate are willing and able to help the less fortunate.
    What happens when the pension commitments consume a disproportionately large share of the cities and states budgets?
    They may not be so generous at that point.
    Oh, I forgot, the federal government can print money to bail them out.
    Don’t worry; problem solved – whoosh!
    Don Levit

  • phil

    A Eurozone Treasury would also have to be able to issue ‘Eurobonds’, which the ECB could buy either directly or from primary dealers, for the Eurozone to be like the US or similar countries. Tax and spend is one part, but the ability to deficit spend sustainably is crucial. (Also, don’t forget the Eurozone is not the whole of the European Union – the UK for example is in the EU but not the Euro, thankfully).

  • phil

    Cullen, I just had a look at your critique of MMT and noticed that you’ve sort of mentioned the argument we had the other day.

    “MMT would likely respond to this criticism saying that I’ve misconstrued Wray’s point and that currency is created to establish national sovereignty, which is what Wray really meant. But this point is obviously wrong also.”

    Obviously I’m not ‘MMT’. I don’t speak for MMT. I’m someone who reads blogs and comments. Also, I didn’t say “this is what Wray really meant”. I think it might be better to focus on MMT itself rather than on how “MMT would likely respond”.

    Also, you’ve taken Wray’s “inherently progressive” comment out of context.

  • http://www.orcamgroup.com Cullen Roche

    First of all, I didn’t write my MMT critique based on our conversations. I wrote it based on years and years of interaction with actual MMTers and discussing these points with the insiders themselves.

    Also, If you don’t want MMT arguments critiqued or you don’t think you’re accurately representing MMT then I recommend you stop with your persistent argumentative style of commentary. If you don’t think you’re helping the cause or representing it accurately then you’re hurting it. Which is precisely what I think you’re doing by constantly attracting attention to my criticism of MMT. In short….LET IT GO ALREADY….

  • phil

    Taking a quote out of context is not a fair or valid form of criticism. But that is what you have done with Wray’s “inherently progressive” comment.

  • http://www.orcamgroup.com Cullen Roche

    I recommend you read Wray’s context again. My point of showing that MMT is inherently progressive is to show that it is not merely descriptive (as some MMTers like to claim when trying to validate its premises). It is inherently prescriptive. This is totally consistent with Wray’s comments. So no, I have not taken anything out of context. You are once again wasting time with pointless criticisms and critiques of things you clearly aren’t that familiar with. Again, if you’re not familiar with the material then you should stop misrepresenting the MMT position, which according to you, you have consistently done. Frankly, I have no idea why you keep commenting on these matters since, by your own admission, you don’t understand the material fully. I recommend you stop commenting on MMT websites or ones that criticize MMT since you clearly don’t feel that you represent their views accurately.

  • Mr. Hunt

    This is my first post on this board because I had to address this post.

    The U.S. has the best quality healthcare in the world. Period. If you are sick and need treatment, the U.S. is where you want to be. The only reason we ever rank low on international healthcare surveys is because of cost, not quality. So, define “better results.” If you define “better” as mediocre results for everyone, you are correct.

    Other countries may have moral hazard due to no copays, but we have a culture that likes to spend more on everything. We spend far more on end of life care than any other country, and we spend more on “unnecessary” care and elective surgeries than any other country. We spend more on unhealthy food than any other country which is why we have some of the poorest demographic risk in the world. We spend more on healthcare innovation than any other country.

    Every system has its flaws, but the U.S. healthcare system’s flaws are hardly due to what you are alluding.

  • phil

    Wray says “Science—including economics—is inherently progressive”.

    He doesn’t say that science (including economics) has an inherently “progressive political agenda”.

    But that is how you describe his comments.

  • http://www.orcamgroup.com Cullen Roche

    Now you’re taking my comments out of context. Phil. LET IT GO ALREADY!

  • phil

    I apologise if I did that.

  • beowulf

    Good piece Cullen. This is such a huge economic advantage that the US has over the Eurozone and its never mentioned (probably because very few people understand it). It is kind of funny that the states that get the most benefits from this redistribution tend to be the states that send the most anti-government politicians to Congress.

  • Nils

    This was a good deal for the allieds. Germany made good on almost all of the debt it had incurred, just recently the last bonds were paid back. Germany also paid back France in Dollars because of weakness in the franc, with no obligation to do so.

  • Nils

    Andrew, it seems you got some wrong information. The treaty is called Schengen, not Shenzhen. If you are European, you can live and work anywhere in Europe without restriction (the last restrictions which have been put in force after Poland joining have been lifted). It’s like having a Green Card in the US.

  • Greg

    I would love to see how a “President Rick Perry” handles the monetary system of his new country.

    It wouldnt be very long before he’d discover;

    A) He needs his own currency
    B) A private banking system alone could not meet his countries needs if his country wished to be integrated to the rest of the world economy
    C) A Central Bank would be necessary
    D) He couldnt acquire enough gold to use a gold standard
    E) His country would be running deficits if his citizens wished to save in his currency.
    F) His national debt would be an obligation TO his citizens not OF them

  • Colin, S.Toe

    Gee, those states must be full of folks who pay no income tax and are dependent on the federal government.

    (Many also seem to feel that they are victims – of that same federal government.)

  • http://None Midas II

    Though we pay twice as much, infant mortality and life expectancy are inferior to many other developed countries.

  • Kurt Brouwer

    Cullen:

    One point you made is rather misleading. You wrote:

    “… Interestingly, the states who take the most and pay the least in are “red states” or states where we tend to hear about the evils of “redistribution”. Florida, Louisiana, South Carolina, Hawaii and Virginia receive the most in federal funding when compared to their tax receipts…”

    Florida voted for Obama in the 2008 election, not exactly a red (Republican) stronghold, although it leans a bit red. Louisiana has for decades been a Democratic stronghold, although that has changed a bit recently. With the election of Republican Governor Jindal, it could be shifting to red. You are correct, South Carolina is reliably red. However, Hawaii is the bluest of the blue, voting roughly 60-70% D for decades. President Obama got north of 80% there in 2008. Virginia also voted Obama in the last election and it has a huge population of Federal workers. At most, it would be purple.

    I don’t disagree with your primary point, but your red states comment was obviously off a bit.

    KB

  • Boston Larry

    Cullen, Please correct me if I’m wrong, but my understanding is that if we divide the USA into geographical regions, the South takes the most and pays the least toward tax revenue relative to any other region of the country, and the majority of Southern states are red states.

  • Boston Larry

    5 of the top 9 states which get more than they pay in taxes are in the South: FL, VA, SC, MS and TX. The first two are purple states, the last three are red states.

  • http://www.orcamgroup.com Cullen Roche

    See the map in the Economist article. It’s actually true that red states take more than they give. I’m not being political. I am just pointing out the facts.

  • Kurt Brouwer

    Cullen

    Have to disagree. The Economist map shows three states as red: NM, MS, WV. However, you wrote:

    ‘…Interestingly, the states who take the most and pay the least in are “red states” or states where we tend to hear about the evils of “redistribution”. Florida, Louisiana, South Carolina, Hawaii and Virginia receive the most in federal funding…’

    In that quotation, I believe you meant red as in politically red or voting R, not in reference to the bright red from the Economist map. For example, you mentioned states such as Hawaii, Virginia, Florida, South Carolina etc. that are not red on the Economist map.

    Not disagreeing with your primary point, but the point you were making in the quote was political in my opinion.

  • Richard

    Cullen – Do you think that the Greeks for example and somehow inferior to Germans? Or that people in Alabama are somehow inferior to people in California?

    I ask, because you simply state it as a fact that some states need to contribute and others need to take without attempting to explain why this is the case.

    It sounds like your implying that there are problems in Greece and Alabama that simply cannot be fixed, like there is no way to turn Alabama into California or Greece into Germany.

    It seems your implying the only solution is a transfer union.

    Is this what you believe?

  • Richard

    Hangemhi – Single payers systems cost less? You must be joking? Your average European spends around 13% of their annual income on healthcare. You pay more in the USA?

  • http://www.orcamgroup.com Cullen Roche

    I am not saying certain people are inferior. I am saying that certain people tend to be consumers rather than producers. As a result they take more than they give. And these people are important components of the global economy. For instance, the Greeks are customers of Germany. Without the Greeks the Germans have fewer customers. Without Alabama the Californians have fewer customers. They’re two sides of the same coin. Saying the makers are more important than the takers is a bit misguided.

  • http://thingscanmatter.blogspot.com Paciocco

    Not to mention who the “makers” and the “takers” are changes over time. In the US 60 years ago the area now referred to as the Rust Belt was the center of American manufacturing. In that same time California went through an incredible gain in population and productivity that brought it to the forefront of the US economy. In Europe, Germany was rather sickly just a decade ago, and analyzing Europe’s history from any timeframe shows the nations there are in constant flux, and nearly every nation had some period of time of relative wealth. Only today’s hopelessly shortsided debate would brand an entire fringe of a continent as permanently inferior.

    The redistribution satisfies on two fronts: moral and economic. Today’s have’s give today have not’s a hand, because tomorrow it might be there turn. And Cullen’s point is the economic motivation- if the rich give some of their money to the poor you can rest assured the poor will turn it right back around and use it to buy from the rich.