This is actually a huge lever of control for the federal government, and I think has contributed greatly to increase of federal power over the states. The reason being that states can tap into that large federal stream... If they meet the federal criteria. This kind of carrot system is actually how many federal laws that seem to effect the states work. For instance, no state was ever mandated to implement the No Child Left Behind act. They just wouldn't get federal education funding if they didn't... Transportation is another area where this is pretty common.
Yeah, like did you know that 18 is the legal drinking age in the US? That's why 18 year old soldiers can drink alcohol in the military. BUT, if a state increases the drinking age to 21 in their state then they get sweet sweet federal highway funds. For a long time Louisiana was a holdout, so 18-21 year olds would go there to party for mardis gras, and the road quality showed it.
Yeah, but then we'd just be dominated by states like Minnesota, California, Delaware, New York, etc. Basically, ginormous pools of money would start to build in the old Union and out on the west coast. But almost everyone in the middle would be hosed. (I mean places like Oklahoma and Colorado would likely be pretty happy, but everyone else would take substantial financial hits.)
> Yeah, but then we'd just be dominated by states like Minnesota, California, Delaware, New York, etc. Basically, ginormous pools of money would start to build in the old Union and out on the west coast. But almost everyone in the middle would be hosed.
Not really. States like California are net payers, but only just, because they have large diverse populations and end up getting back almost all of what they pay in.
It's true that a lot of the middle states are net recipients, but most of them are still below $4000 per capita.
And the bigger problem is that so much of the money is wasted. Each Congressman goes to Washington to bring back pork, and they do, but pork is inefficient. So they bring back $10,000 per capita in funding after paying in $6000, but only $5000 of the $10,000 is put to productive use. Does that really help the states compared to just keeping their original $6000 and using all of it productively because you don't have to negotiate with 49 other states for how to spend your own money?
I think you have an incorrect understanding of pork barrel spending. Of that $10,000 that you put into the government. $6000 go to social security/medicare. $2,000 to military+veterans. Then another $600 to debt. And the remaining $1,400 goes to education/food+ agro/education/transportation/housing/science/energy/internal affairs. I don't know how much of that is pork barrel spending but I doubt it's more than a couple of hundred.
You're using national average math, not net-recipient state math. It's rarely the case that states that receive more than they pay do so as a result of social security. It would also be pretty hard for a state's net receipts to be interest on the debt absent some kind of sovereign wealth fund that held US treasuries, which most US states don't have.
Moreover, the military budget is where a sizable chunk of the pork lives.
And the problem isn't just pork, it's the general inefficiency of hoovering up your state's money and then sending it back with strings attached. Federal programs can require hot garbage like designated "affordable housing" (i.e. cordoning off a slum to concentrate poverty in) as a condition for housing grants, or "teach to the test" education programs like NCLB. It's not a stretch to claim that the states could be better off with less money but without the strings attached.
Sure it can, when the "simple transfers" have qualifiers that induce unfunded inefficiency and other externalized costs.
If you have to spend five hours a month to prove that you qualify for a program that pays $80/month when your labor is worth $10/hour, you're not receiving net $80/month, you're receiving net $30/month and then getting paid to labor for five hours, the second of which you could have done for any other employer using the same five hours, so the value of the program is $30/month even though it costs $80/month to the taxpayer. Plus whatever administrative costs exist on the government's side. And then whatever value the alternative employer would have derived from having a worker available to work those extra hours.
It's even possible for programs to have negative value. They can cost money and then destroy more value than that. A lot of housing and other subsides can do this, e.g. you give some people $500/month for housing, but that only causes local rents to increase by $150/month -- on everyone, including the people not eligible for the subsidy. So on paper you have a thousand people receiving $500/month and you think you've gained $500,000, but then you account for the five thousand people who now pay $150/month more, cost of $750,000, and you're net -$250,000. Meanwhile the taxpayer still had to pay $500,000 to make that happen.
I know in theory you can spend money that destroys value. You don't even need to rely on weird supply/demand curves, you could just pay for bomber jets to literally firebomb a city.
But realistically how could Montana get an 80% increase in efficiency while providing similar services to the federal government?
And according to normal economics textbooks increasing market rent isn't destroying value. If more people move to a city which drives up demand and rent. Economists don't think of that as value destruction. In classic economics textbooks the value destruction caused by subsidized rent is that some people will spend $1000 on rent that they would never rent without the subsidy because they only get $800 of value from it + the dead weight loss of the taxes that funded that subsidy.
> But realistically how could Montana get an 80% increase in efficiency while providing similar services to the federal government?
By removing all the strings. The problem with the existing federal programs is that they're numerous, complex and individually small, which is the recipe for inefficiency. That results in high administrative costs -- not only for the government but also for the recipients, and only the first cost is actually accounted for in the government budget, even though the second is much larger. Because government agencies do their tasks as a full time job but the recipients are novices who have to amortize the cost of learning and using the system over only their individual use of it. Again, suppose someone has to spend five hours a month to navigate a program that pays $80/month. Then if their labor is worth $10/hour, just their side of the transaction contains $50/month worth of inefficiency.
Even the fact that housing grants have to be spent on housing is inefficient, because it distorts the market for the thing being subsidized:
> And according to normal economics textbooks increasing market rent isn't destroying value. If more people move to a city which drives up demand and rent. Economists don't think of that as value destruction. In classic economics textbooks the value destruction caused by subsidized rent is that some people will spend $1000 on rent that they would never rent without the subsidy because they only get $800 of value from it + the dead weight loss of the taxes that funded that subsidy.
But this isn't caused by more people moving to the city, it's caused by the people who already live there getting a bunch of money they're only allowed to spend on rent. Then some of them would prefer to have fewer roommates or a bigger apartment, so they try to use the money for that, which requires the people who would otherwise live in those other apartments to have to outbid them, causing everyone to have to pay higher rents on the same apartments.
Meanwhile the rent increase goes to landlords who typically remove it from the local economy, either because the building isn't owned by a local to begin with, or because the owner is a wealthy person who then invests the money in index funds etc. which transfers ~98% of it out of the state. So the value isn't "destroyed" but it immediately leaves the state, which from the state's perspective is basically equivalent.
