As part of a 2007 law, Congress decreed the establishment of a new federal program to dangle grants in front of states that agree to enact more stringent laws on swimming pool safety. According to Consumer Product Safety Commissioner Nancy Nord, however, the multi-million-dollar pot Congress has set aside for this purpose has sat unused: “not one state has applied for a grant and not one dollar has been disbursed, despite changes made to improve the program. We will soon have paid CDC [the Centers for Disease Control] almost half a million dollars to administer a grant program with no takers.”

What do you think the odds are that lawmakers will learn from the experience and do away with the grant program? Contrariwise, what do you think the odds are that someone on Capitol Hill right now is preparing to argue that if no states have applied for grants, the amounts on offer must be too low, and new lawmaking is needed to provide for bigger subventions?

In all seriousness, this forlorn little program is a tiny and failed example of a genre of federal initiative that all too often enjoys success: using federal tax dollars to bribe states and localities into raising spending and extending regulation. The proliferation of such programs helps explain why the earlier and sounder idea of federalism — which saw the national and state governments as checking each others’ overweening powers — has given way to a spirit of mutual enablement (“cooperative federalism”) at the expense of the citizenry and its freedom. Thus the Obama administration, realizing that public opinion is not yet ready for a federal-level campaign to demonize fattening and salty foods, is happy to drop millions of dollars on local governments like Mayor Bloomberg’s in New York City to do exactly that. And for decades Congress has been creating programs subsidizing local hiring of teachers, police officers and other public employees — with the presumably unintended result of saddling localities with unsustainable payrolls and pension obligations when times turn tough.

Our friend Michael Greve has a new book out called The Upside-Down Constitution exploring how coordination between once-rival levels of government has been turned into an engine of growth for the leviathan state. You can read more about it here, here, and here at Liberty Fund’s Library of Law and Liberty site. Relatedly, Greve points out in this post something worth keeping in mind: federalism is a structure, not a balance.

Today POLITICO Arena asks:

Is it rank hypocrisy for the nation’s most prominent critic of super PACs to reverse course and gave his blessing to them, or just common sense in the face of multi-million dollar Republican super PAC efforts aimed at ousting him from office?

My response:

There is an element of hypocrisy in Obama’s reversal since he and his party have long been the main proponents of campaign finance “reform” — and let’s remember that he also rejected public funding in his 2008 campaign, even as he and the Democrats have long championed such funding. But he’s also simply bowing to reality: for decades Congress has tried to restrict campaign contributions, but contributors always find a way to make their voices heard. And why not: with government today regulating virtually every aspect of life, you’d better be in the political game.

There are many “dirty little secrets” surrounding campaign finance “reform.” One is that incumbents love it because, far from “leveling the playing field,” it gives them a big advantage over challengers. Another is that proponents regularly confuse the issues: it was not Citizens United that enabled super PACs, for example, but Speech Now v. FEC. And a third is that elections in states like Virginia that have minimal regulations have no more corruption — the prevention of which is the rationale for restrictions — than states with draconian restrictions.

How much better it would be if the First Amendment were fully respected and people and organizations could give unlimited amounts directly to candidates and parties. Then candidates could no longer complain that they can’t control the messages “their” super PACs put out.

It’s being reported that in his 2013 budget President Obama will propose to increase spending now and reduce the deficit some day. Isn’t that what every budget promises these days? As I noted last summer during the debt ceiling fight at the Britannica Blog, fiscal conservatives should be very skeptical of plans and proposals that promise to cut spending some day—not this year, not next year, but swear to God some time in the next ten years:

As the White Queen said to Alice, “Jam to-morrow and jam yesterday—but never jam to-day.” Cuts tomorrow and cuts in the out-years—but never cuts today.

We’ve become so used to these unfathomable levels of deficits and debt—and to the once-rare concept of trillions of dollars—that we forget how new all this debt is. In 1981, after 190 years of federal spending, the national debt was “only” $1 trillion. Now, just 30 years later, it’s past $15 trillion. So here’s a graphic representation from the Washington Post (now about half a trillion behind) of debt dysfunction:

Those are the kind of numbers that caused the Tea Party movement and the Republican victories of 2010. And where did all this debt come from? As the Tea Partiers know, it came from the rapid increase in federal spending over the past decade:

Annual federal spending rose by a trillion dollars when Republicans controlled the government from 2001 to 2007. It has risen another trillion during the Bush-Obama response to the financial crisis. So spending every year is now twice what it was when Bill Clinton left office 10 years ago, and the national debt is almost three times as high. Republicans and Democrats alike should be able to find wasteful, extravagant, and unnecessary programs to cut back or eliminate. And yet many voters, especially Tea Partiers, know that both parties have been responsible. Most Republicans, including today’s House leaders, voted for the No Child Left Behind Act, the Iraq war, the prescription drug entitlement, and the TARP bailout during the Bush years. That’s one reason that even voters outraged at the Obama-Reid-Pelosi spending surge can’t quite get enthusiastic about Republicans.

The problem on Capitol Hill is spending, deficits, and debt. Members of Congress need to tell the president that you don’t rein in out-of-control spending by increasing it. And if voters want members of Congress to insist on cuts, they’re going to have to let their representatives know that.

“White House compromise still guarantees contraceptive coverage for women,” reads the Washington Post headline coming out of President Obama’s press conference this afternoon. Trying to tamp down the escalating political storm his administration created three weeks ago when it ruled that, under Obamacare, employers with religious objections to providing contraceptive and abortifacient coverage must do so anyway, his team has come up with a “compromise.”

Here it is, as reported by the Post – read carefully:

Women still will be guaranteed coverage for contraceptive services without any out-of-pocket cost, but will have to seek the coverage directly from their insurance companies if their employers object to birth control on religious grounds.

Religiously-affiliated non-profit employers such as schools, charities, universities, and hospitals will be able to provide their workers with plans that exclude such coverage. However, the insurance companies that provide the plans will have to offer those workers the opportunity to obtain additional contraceptive coverage directly, at no additional charge.

Got that? Then who’s going to pay for that additional coverage? (It’s not “free.”) The insurance companies? They’ll simply pass the costs back to the religious employer – insofar as the employer picks up at least part of the cost of covering his employees’ health insurance premiums, as most do. So we’re right back where we started from.

This is a fig leaf, which is why progressives have quickly rallied behind the “compromise.” It’s just another example of the something-for-nothing mindset that drives their agenda. Stay tuned. We haven’t heard the end of this.

The three-week battle over ObamaCare’s contraceptive-abortifacient ruling isn’t letting up. Catholics for Choice has a full-page ad in this morning’s Washington Post, urging the president to stay firm. And it’s the lead story today on NPR’s Morning Edition, which in printed form devotes fully 2 of 16 paragraphs—the last 2—to the other side (not bad for NPR). The gist of the piece is, what’s the big deal? “The only truly novel part of the plan is the ‘no cost’ bit,” says NPR’s Julie Rovner.

“Now millions more women and families are going to have access to essential health care coverage at a cost that they can afford,” says Sarah Lipton-Lubet, policy counsel with the ACLU. “But as a legal matter, a constitutional matter, it’s completely unremarkable.”

Unfortunately, they’re right: our modern anti-discrimination law has been so extended that today it undermines religious liberty on many fronts. Two terms ago, for example, a bitterly divided Supreme Court ruled that the Christian Legal Society, a student group at the Hastings Law School, had to admit “all comers,” not only as members but as officers. (See Cato’s amicus brief defending the group’s right to discriminate in the name of religious liberty and freedom of association.)

Here, the federal Equal Employment Opportunity Commission ruled in 2000 that failure to provide contraceptive coverage violates the 1978 Pregnancy Discrimination Act, an amendment to Title VII of the 1964 Civil Rights Act that outlaws, among other things, discrimination based on gender. And 26 states today have similar “contraceptive equity” laws on the books, Rovner reports, which state courts have upheld in suits brought by Catholic Charities and others. She quotes from the 2006 decision of New York State’s top court:

When a religious organization chooses to hire non-believers, it must, at least to some degree, be prepared to accept neutral regulations imposed to protect those employees’ legitimate interests in doing what their own beliefs permit.

Right there, of course, is the problem. As I wrote over the past two days, no one on the other side is asking employees to do anything contrary to their religious beliefs—or not do “what their own beliefs permit.” Employers are not “imposing their religious beliefs” on their employees, as some have argued. Those employees are still perfectly free to use contraceptives and abortifacients. They just shouldn’t expect their employers, through the group health insurance plans the employers offer, to provide and pay for such measures if doing so violates their religious beliefs. But that would be to discriminate against women, the courts have held, since only women get pregnant. Thus does our antidiscrimination law, as found in statutes, trump religious liberty, as once protected by the Constitution. “To each his own” falls by the wayside when “we’re all in this together,” as ObamaCare requires us to be.

My Cato colleague John Cochrane — who is way smarter than I am — has a generally excellent op-ed in today’s Wall Street Journal on ObamaCare’s contraception mandate:

Salting mandated health insurance with birth control is exactly the same as a tax—on employers, on Catholics, on gay men and women, on couples trying to have children and on the elderly—to subsidize one form of birth control…

The tax rate and spending debates that occupy the media are a small part of the effective taxes and spending that the government achieves by these regulatory mandates…

The natural compromise is simple: Birth control, abortion and other contentious practices are permitted. But those who object don’t have to pay for them. The federal takeover of medicine prevents us from reaching these natural compromises and needlessly divides our society…

Sure, churches should be exempt. We should all be exempt.

My only quibble is with his claim, “Insurance is a bad idea for small, regular and predictable expenses.”

That’s generally true. But medicine is an area where, potentially at least, small up-front expenditures (e.g., on hypertension control) could prevent large losses down the road. So it may be economically efficient for health plans to cover some small, regular, and predictable expenses. Both the carrier and the consumer would benefit. In fact, that would be the market’s way of telling otherwise uninformed consumers, “Hey! Controlling your hypertension is a really good for you!” And really, if someone is so risk-averse that they want health insurance with first-dollar coverage of everything — and they’re willing to pay the outrageous premiums that would accompany such coverage — why should we take issue with that?

ObamaCare’s contraceptive-coverage mandate demonstrates that government does a horrible job of picking only those types of “preventive” services for which first-dollar coverage will leave consumers better off. But I also think advocates of free-market health care generally need to let go of the idea that health insurance exists only for catastrophic expenses.

When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.

And when I discuss my work on the economic impact of government spending, I often get the same reaction.

This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.

• The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
• A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
• The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
• A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”

This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.

That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.

But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.

There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).

In other words, government spending undermines growth, and the damage is magnified by a poorly designed tax policies.

The authors then put forth a theoretical hypothesis.

…economic models argue that the excess burden of tax increases disproportionately with the tax rate—in fact, roughly proportional to its tax rate squared (Auerbach 1985). Likewise, the scope for self-interested bureaucracies becomes larger as the government channels more resources. At the same time, the core functions of government, such as enforcing property rights, rule of law and economic openness, can be accomplished by small governments. All this suggests that as government gets bigger, it becomes more likely that the negative impact of government might dominate its positive impact. Ultimately, this issue has to be settled empirically. So what do the data say?

These are important insights, showing that class-warfare tax increases are especially destructive and that government spending undermines growth unless the public sector is limited to core functions.

Then the authors report their results.

Figure 7.9 groups annual observations in four categories according to the share of government spending in GDP during that year. Both samples show a negative relationship between government size and growth, though the reduction in growth as government

becomes bigger is far more pronounced in Europe, particularly when government size exceeds 40 percent of GDP. …we provide new econometric evidence on the impact of government size on growth using a panel of advanced and emerging economies since 1995. As estimates can be biased due to problems of omitted variables, endogeneity, or measurement errors, it is necessary to rely on a broad range of estimators. …They suggest that a 10 percentage point increase in initial government spending as a share of GDP in Europe is associated with a reduction in annual real per capita GDP growth of around 0.6–0.9 percentage points a year (table A7.2). The estimates are roughly in line with those from panel regressions on advanced economies in the EU15 and OECD countries for periods from 1960 or 1970 to 1995 or 2005 (Bergh and Henrekson 2010 and 2011).

These results aren’t good news for Europe, but they also are a warning sign for the United States. The burden of government spending has jumped by about 8‑percentage points of GDP since Bill Clinton left office, so this could be the explanation for why growth in America is so sluggish.

Last but not least, they report that social welfare spending does the most damage.

Governments are big in Europe mainly due to high social transfers, and big governments are a drag on growth. The question is whether this is because of high social transfers? The answer seems to be that it is. The regression results for Europe, using the same approach as outlined earlier, show a consistently negative effect of social transfers on growth, even though the coefficients vary in size and significance (table A7.4). The result is confirmed through BACE regressions. High social transfers might well be the negative link from government size to growth in Europe.

The last point in this passage needs to be emphasized. It is redistribution spending that does the greatest damage. In other words, it’s almost as if Obama (and his counterparts in places such as France and Greece) are trying to do the greatest possible damage to the economy.

In reality, of course, these politicians are simply trying to buy votes. But they need to understand that this shallow behavior imposes very high costs in terms of foregone growth.

To elaborate, this video discusses the Rahn Curve, which augments the data in the World Bank study.

As I argue in the video, even though most of the research shows that economic growth is maximized when government spending is about 20 percent of GDP, I think the real answer is that prosperity is maximized when the public sector consumes less than 10 percent of GDP.

But since government in the United States is now consuming more than 40 percent of GDP (about as much as Spain!), the first priority is to figure out some way of moving back in the right direction by restraining government so it grows slower than the private sector.