How to Avoid a New, and Much Worse, Financial Crisis


Is it possible for the U.S. to effectively address its enormous debt problem in today’s contentious political environment? Two weeks ago I discussed in “America’s Fourth Revolution” why the political scientist James Piereson thinks this is impossible. He is very persuasive but I think he is too pessimistic.
CaptureSince then I have discussed several different things we should do to turn around this perilous situation:

  • If spending for just Medicare and Medicaid (two very expensive entitlement programs) alone fell by 25% over ten years, as a percentage of GDP, and then stayed in line with GDP after that, the U.S. would actually have a budget surplus in 2040.
  • Just recognizing the magnitude of our debt problem would do wonders in public awareness.
  • If the Tea Party were able to grow beyond a protest movement and unite the country behind a majoritarian agenda of work, mobility and opportunity, it would be much more effective in achieving its fiscally conservative goals.
  • Another significant way to save money, and get better results at the same time, is to turn over more and more programs to the states. A good way to do this is with block grants to the states for federal programs in such areas as welfare, education and Medicaid. This would give the states more flexibility to get the job done in an efficient and cost saving manner.

What we need to do to turn our debt situation around is to greatly shrink our annual deficits below their current level of about $450 billion per year. If the debt is growing slower than the economy, then it will shrink as a proportion of the economy. This is what happened after WWII (see above chart) and it needs to happen again now!

Perfecting Our Union: Ending the War Against the States


“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”                                                 The Tenth Amendment to the U.S. Constitution

As the readers of this blog know, I am very concerned about our massive (public) debt, now at 74% of GDP, the highest since the end of WWII. One way to get federal spending under better control is to give more power back to the states (which are required to balance their budgets), as described by Adam Freedman in his new book “A Less Perfect Union: the Case for States Rights.”
CaptureHere are some of the many advantages of doing this, according to Mr. Freedman:

  • Better schools, roads and infrastructure, as states are freed from wasteful federal mandates. The Common Core, for example, should be considered as federal guidelines and not as an attempt to require a specific curriculum.
  • Lower taxes, as states engage in a virtuous competition for citizens and businesses.
  • Improved stewardship of natural resources, as decisions reflect local priorities on land use.
  • Less crowded prisons, by returning criminal jurisdiction to the states, where penal reform is light-years ahead of Washington.
  • An end to national gridlock, as the most divisive social issues devolve to state and local decision-makers. A good example here is the current interest by states and localities to enact their own minimum wage laws. This is far superior to raising the national minimum wage law in a one-size-fits-all manner.


The way to implement a program of giving responsibility back to the states is with block grants. A plan to do this for social welfare programs was formulated by the House Budget Committee just one year ago. It is often suggested to do something similar with federal education programs and with Medicaid as well.
Moving programs back to the states will improve their quality and help get costs under much better control. It makes much sense to move in this direction!