Austrian Bureaucrat Loses $439 million of Taxpayers Money on Derivatives Gamble

This is a prime example of negative externalities (or cost of a mistake to the society) derived from centralized institutions has far more damaging effect than errors incurred by entrepreneurs or so called "market failures".

A mistaken decision from political authorities extrapolates to greater tax burden for the citizenry.

From Reuters (hat tip Zero Hedge)

Austria said it planned stricter controls over regional finances after a Salzburg civil servant gambled hundreds of millions of euros of taxpayers' money on high-risk derivatives.

Finance Minister Maria Fekter said on Tuesday she was preparing new national legislation to impose stricter conditions on how regional administrations could use money borrowed at preferential rates from the Federal Financing Agency (BFA).

Salzburg officials said last week they had sacked a finance director after determining she used doctored documents and false signatures to hide a trail of losses from deals that started more than a decade ago, causing a book loss of 340 million euros ($439 million).

The incident has sparked calls for fresh elections in Salzburg state and for regional financing rules to be reformed. Austrian states have 8.2 billion euros of debt, or 8.1 percent of the country's public debt.

"It can't go on that one keeps getting cheap money from the BFA and then starts gambling with it," Fekter told journalists, adding that the states could save 150 million euros per year by using the BFA for all their financing needs.

The above is another great example of knowledge problem. This shows that political agents are also human beings who possesses or embodies the same set of shortcomings as everyone else. Except that they command resources and privileges via mandated budges and guns.

Losses from “gambling” is actually fait accompli or a side issue. If the gamble paid off then this won’t have been in the news.

But even if we presume the noble intentions have guided the actions of bureaucrats, the real issue is why governments are given the latitude to put taxpayer resources at risk and why their losses means greater tax burdens instead of reducing them.

The irony of politics is that political errors have always been rewarded-- although the culprits does get sacked, the system remains in place--instead of being punished, all these comes at the expense of taxypayers—in terms of opportunity costs via resources and time, as well as, civil liberties.

Graphic of the Day: EUSSR

British author, journalist and politician Daniel Hannan at the Telegraph writes,

Take a close look at this promotional poster. Notice anything? Alongside the symbols of Christianity, Judaism, Jainism and so on is one of the wickedest emblems humanity has conceived: the hammer and sickle.

For three generations, the badge of the Soviet revolution meant poverty, slavery, torture and death. It adorned the caps of the chekas who came in the night. It opened and closed the propaganda films which hid the famines. It advertised the people's courts where victims of purges and show-trials were condemned. It fluttered over the re-education camps and the gulags. For hundreds of millions of Europeans, it was a symbol of foreign occupation. Hungary, Lithuania and Moldova have banned its use, and various  former communist countries want it to be treated in the same way as Nazi insignia.

Wonder why the euro, with its current thrust towards centralization (fiscal union, banking union, bank supervision), seems headed for perdition?

Taxing Greeks: Separating Reality from Fiction

This terse article gives us a glimpse of the mechanics of how wealthy Greeks has successfully been able to avoid paying taxes

From the Wall Street Journal Blog,

That Greeks have a penchant for evading taxes isn’t exactly news — when tax collectors started comparing swimming-pool ownership with incomes, wealthy Greeks camouflaged their pools. And because hidden income is hidden, figuring the size of the tax dodge is difficult.

Armed with data from one of Greece’s ten largest banks, economists Nikolaos Artavanis, Adair Morse and Margarita Tsoutsoura recently set themselves to the task. The banks, with tens of thousands of customers across the country, provided loan and credit-card application and performance data. That not only gave the economists access to self-reported incomes, but also allowed them to infer the banks’ estimates of true incomes — which are likely closer to the mark.

The economists’ conservatively estimate that in 2009 some €28 billion in income went unreported. Taxed at 40%, that equates to €11.2 billion — nearly a third of Greece’s budget deficit.

Why hasn’t Greece done more to stop tax evasion? The economists were also able to identify the top tax-evading occupations — doctors and engineers ranked highest — and found they were heavily represented in Parliament.

It’s always easy to portray the solution to fiscal problems, through statistical estimates, as merely one of enforcement procedures of tax policies.

Unfortunately, such simple minded approach escapes the premises of people’s reactions to repressive social policies and to the parasitical relationships which underpins their political institutions.

As for some of the professional Greek elites, as noted above, their tax shields may have been derived through their participation in the political hierarchy.

Mainstream economists seem to forget that they are dealing with real people, who by nature will look after their interests by adapting to the realities of the evolving political economic environment.

And it is for this reason why top-down or centralized policies inherently fails.

Quote of the Day: On Banking Union

But a banking union just makes the problem worse. Not today, maybe. But certainly tomorrow. What makes government action attractive is the opportunity for the body politic to pool its money to achieve things that individuals cannot achieve on their own. This idea ignores the possibility of voluntary collective action. But more importantly, the romance of this idea ignores the reality that inevitably, politicians are spending other people’s money. One of the simplest and deepest ideas of Milton Friedman is that people don’t spend other people’s money very carefully, especially when they are spending it on other people.

That’s from Professor Russ Roberts at the Café Hayek on proposals for a banking union to solve the EU debt crisis.

Whether it is banking union or fiscal union they are all the same, they ALL depend on the free lunch (Santa Claus) principle or of spending other people’s money.

And this is what makes the touted political solutions unfeasible and unsustainable. The easiest thing to do in this world is to spend other people's money.

Economic Integration is a Function of Economic Freedom, not Planned Chaos

Cato’s Marian Tupy rightly points out that the much touted benefits from European Union’s integration has been overrated.

The European politicians love to talk about the “huge” benefits of membership in the European Union. It is certainly true that the “single” market between the EU member states has brought tangible benefits, but those have been declining in importance as technological change made access to services and capital cheaper and easier, and trade liberalization progressed world-wide.

Moreover, as the Brussels-based EU bureaucracy expanded, economic liberalization gave way to regulation that helped to strangle European growth (see the graph below). Consider the latest absurdity to emerge from Brussels—a poultry regulation, which aimed to increase the comfort of the egg-laying chickens, but resulted in a drastic cut in egg production and a 100% increase in the price of eggs.

The EU bureaucracy may not appreciate the problem of unintended consequences, but ordinary Europeans are beginning to realize that the EU no longer is what it used to be—a byword for prosperity and stability. In the Czech Republic, for example, a record number of citizens do not trust the EU (63 percent) and the EU Parliament (70 percent). If the EU elite persist in killing jobs and growth, it may bring about the ultimate unintended consequence—the break up of the EU.

The EU represents a political economic entity premised on incorrigible self-contradiction.

On the one hand, the purported mission has been to economically integrate EU’s diverse national economies. On the other hand, the direction of politics has been to centralize the system. Yet political centralization and economic decentralization are fundamentally incompatible.

Professor Ludwig von Mises called this Planned Chaos.

The market economy safeguards peaceful economic co-operation because it does not use force upon the economic plans of the citizens. If one master plan is to be substituted for the plans of each citizen, endless fighting must emerge.

And this is why the ongoing EU debt and welfare crisis has been symptomatic of the friction from the clashing forces of centralization and decentralization. The result of which has been underperformance. [The declining growth in EU, in spite of the 12 year old union, is mostly a result of capital consumption from the EU's welfare state and from various distortive regulations exemplified by the above.]

In reality, EU’s economic integration serves merely a cover for covert plans to establish political fantasyland. Eventually the path towards centralization will lead to unnecessary violence and the self-implosion of an unsustainable and unviable political system

If people in Brussels hold economic integration as their primary goal, then all they should do is voluntarily drop their political ambitions and allow the individual market economies in Europe to flourish with little or no political baggage attached.

But of course, this would mean that EU bureaucrats would be out of jobs and vested interest groups would lose their politically endowed privileges.

So this is not going to happen until the cumulative effects of “planned chaos” becomes totally unwieldy. Yet they seem headed in that direction.

Germany Wants New EU Constitution: Lebensraum Merkel Version?

Sometimes I ponder upon the possibility that today’s crisis has been engineered to impose ulterior goals. In the resonant words of former White House Chief of Staff Rahm Emmanuel,

You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before.

This I think may apply to the European Union

The Reuters reports,

Germany wants to reignite a debate over creating an EU constitution to strengthen the bloc's ability to fight off financial troubles and counter-balance the rising influence of emerging economies, Germany's foreign minister said on Friday.

Guido Westerwelle said the bloc's Lisbon treaty, drafted after Dutch and French voters rejected a proposed constitution in 2005, was not enough to keep European decision-making structures effective.

"We have to open a new chapter in European politics," Westerwelle told reporters on the sidelines of a meeting of EU foreign ministers in Copenhagen. "We need more efficient decision structures."

The German minister presented the idea to his counterparts at the Copenhagen meeting, during which they also discussed plans to run foreign policy more cheaply. He said discussions on the issue of a new constitution should continue in Berlin.

The desire and the insistence to centralize the EU translates to an implied expansion of Germany’s political power over the region. Since the EU crisis unfolded, it has dawned on me that the path towards a fiscal policy union seems like a variant of one of Adolf Hitler’s major goals—Lebensraum (living space) for the German people.

But instead of forcible (military based) annexations, the Germans have leveraged the acquisition of political power through stealth ‘expansionist policies’ such as bailouts and the attendant ‘proposed’ changes in EU’s political and regulatory framework as the above.

Yet in a world where forces of decentralization has been snowballing, these surreptitious designs are likely to meet the same fate as with the Hitler version.

Integrating the EU, should not be coursed through centralization but through economic freedom and sound money. With economic freedom, the relevance of geographical political borders diminishes.

Euro Crisis: Path towards United States of Europe?

Is the Emmanuel Rahm creed of using crisis as an opportunity to expand political power being tacitly enforced in the Eurozone?

This from the New York Times, (bold emphasis mine)

As leaders in Europe try to contain a deepening financial crisis, they are also increasingly talking about making fundamental changes to the way their 17-nation economic union works.

The idea is to create a central financial authority — with powers in areas like taxation, bond issuance and budget approval — that could eventually turn the euro zone into something resembling a United States of Europe.

Officials have been hesitant to publicly endorse such a drastic change. But privately they say the issue has gained urgency in recent months, as it has become clear that Europe’s current approach, which requires unanimity on any significant moves, is unwieldy and inefficient. The idea is being promoted by some global financial officials, who worry about the risks that continued uncertainty in Europe poses to the global economy.

Recently, for instance, when an official from a European central bank met with a financial official in Washington, his host brandished the Articles of Confederation, the 1781 precursor to the United States Constitution, to use as an example of why stronger unions become necessary…

And that is why, despite all the political obstacles, Europe appears to be inching closer to a more centralized approach, and some officials are going public on the issue…

The idea of a European Treasury that would enforce fiscal discipline on wayward countries, while also having the power to spread European Union wealth from healthier countries to ones struggling to pay their debts, is fiercely unpopular among voters in many countries. Those in prosperous nations like Germany do not want to see their taxes used to bail out countries that borrowed their way into trouble. And those in weaker nations are reluctant to allow outsiders to dictate how their governments spend their money and tax their citizens.

I have dealt with this earlier.

Those who believe that the success of the Euro will depend on ‘fiscal and political union’ will acclaim this move as a necessity. They would see this as an elixir. Again, they would be wrong.

As I pointed out earlier, the Soviet Union (or Yugoslavia) had them both, but this didn’t stop these unions from dissolution. Proponents of the political-fiscal union nostrum, only look at the US as THE model, without looking at others. This is called the focusing effect.

Yet everything boils down to fundamental economics, where spending more than one can finance would extrapolate to insolvency, bankruptcy and or eventual political dismemberment. No amount of fiscal or political union will stop this. Politics will never supersede economics.

The obsession to centralize and its fulfillment would account for the death knell for the Euro.

Apparently the current political winds hasn’t been to wean away from the welfare state, instead, such gradualist actions toward a ‘United States of Europe’ implies of the opposite—the preservation and expansion of the tripartite political architecture of the welfare state-central bank-banking system. In other words, use the political union to save the banking system and expand control over the marketplace.

This reveals that the politicians of the Eurozone seek models that only suit their self-interests.

As earlier noted, the political climate of the Eurozone could be symptomatic of the state of the mental health of many Europeans.

France-Germany Plot a Politically Centralized Eurozone with More Financial Repression

The struggle to save the Euro has been giving windows of opportunities for Euro politicians to adapt the Emmanuel Rahm doctrine/creed—use the crisis to implement things that could not be done before.

From the thejournal.ie, (bold emphasis mine)

FRANCE AND GERMANY have agreed to introduce a joint corporate tax rate in their countries by 2016 – and have called on other Eurozone countries to establish a collective financial ‘government’ for the entire Eurozone.

Holding a press conference after a bilateral summit, German chancellor Angela Merkel and French president Nicolas Sarkozy said their countries would also try to introduce a so-called ‘Tobin Tax’ on financial transactions as a matter of priority.

Those who believe that the success of the Euro will depend on ‘fiscal and political union’ will acclaim this move as a necessity. They would see this as an elixir. Again, they would be wrong.

As I pointed out earlier, the Soviet Union (or Yugoslavia) had them both, but this didn’t stop these unions from dissolution. Proponents of the political-fiscal union nostrum, only look at the US as THE model, without looking at others. This is called the focusing effect.

Yet everything boils down to fundamental economics, where spending more than one can finance would extrapolate to insolvency, bankruptcy and or eventual political dismemberment. No amount of fiscal or political union will stop this. Politics will never supersede economics.

Moreover, the plan to establish a ‘Tobin Tax’ on financial transactions has proven to be ineffective that would only likely result to a backlash.

Notes the Bloomberg/SF Gate, (bold highlights mine)

A 1996 report on financial transactions taxes for the Canadian government found that Sweden's 1984 levy of 1 percent on equity trades, doubled two years later, caused half of the country's trading to move to London by 1990, a year before the tax was abolished. Capital gains revenues decreased as volume sank, "almost entirely offsetting revenues from the equity transactions tax," the report said.

We are seeing a world enduring dramatic strains from a transition. Accrued stress from democratization of information, widening of social connections and commerce via (globalization) which has been operating in stark conflict with 20^th century welfare based governance system.

Politicians desire to preserve the status quo by proposing the same centralized vertical structured organizations that had been scuttled by the end of the 20^th century.

Yet even under the same structure, boom bust policies and welfare spending, which has been the cause of this continuing crisis, has still been viewed as a sine qua non path to political survival or success. This is path dependency.

That’s why there seems no way out as welfare political economies are bound for collapse, regardless of ‘unions’. It’s just a matter of time.

Notice how French and German politicos have been propounding to adapt measures that would forcibly rechannel resources from the private sector of the region to the foundering politically privileged banking sector.

Eventually people will see through this tomfoolery and revolt. The growing incidence of the riots in developed economies (as in UK) could be imputed to such dynamics.

Notice too how desperate these politicos are, such that they would take upon any measures regardless of the consequences. Taxes on financial transactions will force investors to look elsewhere.

All these for the sake of saving the banking system who feeds or funds the welfare government and who has been backstopped by central banks.

Now Europe’s self-inflicted losses can be Asia, ASEAN and the Philippines’ gains. All we need is to assume the opposite policies of what Europe or the US has been doing. This means we should decentralize, liberalize trade, decrease taxes and repeal cumbersome laws and regulations, and most importantly is to diminish dependence on politics by embracing economic freedom.

In short, let entrepreneurs determine the prosperity of the nation.

Greece Crisis: The Lehman Moment Hobgoblin

But while, as in the lynch mob, the majority can become actively tyrannical and aggressive, the normal and continuing condition of the State is oligarchic rule: rule by a coercive elite which has managed to gain control of the State machinery. There are two basic reasons for this: one is the inequality and division of labor inherent in the nature of man, which gives rise to an "Iron Law of Oligarchy" in all of man's activities; and second is the parasitic nature of the State enterprise itself. Murray N. Rothbard For a New Liberty: The Libertarian Manifesto

Some have suggested that the ongoing crisis in Greece could epitomize the counterpart to the Lehman episode, which triggered global meltdown contagion in 2008.

As Olli Rehn, European Union Economic and Monetary Affairs Commissioner said in a recent Bloomberg interview[1]

“We have always been concerned of contagion,” Rehn said. “One of the achievements over the past one-and-a-half years has been that we have been able to prevent a financial meltdown in Europe. We have been able to avoid a Lehman Brothers kind of catastrophe on the European soil. And moreover, we have been able to contain the crisis to the three countries now under the program,” he said.

This rabid fear of fractional reserve banking induced debt deflation represents as only one of the major influences guiding the current path of policymaking. It’s partly ideological.

But most importantly this signifies as the implicit desire to keep the current unholy central bank-government-banking system cartel or patronage system intact.

Proof of this is that the exigency to conduct bailouts has almost been representative of the creditor nation’s banking system exposure to crisis affected economies[2]

Any signs that would risk the survival of this tripartite global political arrangement would translate to urgent or contingent collaborative actions, despite political differences.

Faced with the risks of a Greek default, the ECB and Germany have been working on a compromise[3]. China’s recent declaration to help shore up Eurozone bonds or the bailout of Greece[4] has also demonstrated such tight kinship on a global scale.

The current framework of socio-political institutions has been built around such symbiosis. It’s a relationship based on financial repression.

And unknown to most, the political elites will fight to maintain this status quo despite the unpopularity on the constituency.

Politicians essentially know that they can manipulate voters.

Voters have mostly elected leaders for what they stand for. But once in power, people cannot or will not be able influence the politicians’ actions, which usually depart from their pre-election promises.

And this is what most experts don’t get.

So political elites will come up with usual hobgoblins as the “Lehman Moment” to ensure that accompanying policies would translate to the preservation of their political privileges.

Misdiagnosing Greeces’ Problems

It would be misplaced to argue that the survival of the Euro depends on “political and fiscal union” as celebrity guru Nouriel Roubini writes[5].

Had this been true, then the Soviet Union would have still existed. The USSR had a centralized monetary system, political and fiscal union but got dissolved.

The current problems of the Euro have not been because of the lack of centralization but because of it.

Political spending has reached levels whereby the productive sectors of the society can’t afford to pay.

As exhibited in the above charts, government spending growth[6] and a nation’s ability to pay[7] has been tightly correlated.

Thus, the political economy of institutional centralized redistribution (or free lunch policies) backfires once economic imbalances has reached the “tipping point”.

Essentially the Bismark-Keynesian concepts of welfare economics have reached a point of having to boomerang. We are at this turning point.

Thus the key to restoring competitiveness is to REVERSE the fundamental cause of such imbalance—government spending or dismantle or reduce welfarism.

The unfolding Greece crisis should be a reminder of the unviability of false promises and serves as preview of what we should expect once a major bubble bust emerges—but this time at a much larger scale.

Deflation Charade

I read of some comments that suggests of a deflation risk from Greece’s insistence to keep up with the “fiscal austerity” and that Greece would greatly benefit from exiting the Eurozone where she can devalue at will.

And that by devaluing this risk “flooding the Eurozone with ‘cheap’ goods”.

Despite the current crisis, Greece has NOT been suffering from deflation but from stagflation as shown in the charts from tradingeconomics.com[8]

Yet devaluation would not solve Greece’s economic predicament because her debt are mostly denominated in Euros.

An exodus from the Euro coupled with devaluation would only mean Greece would need more drachmas to pay for Euro based obligations unless she can convert these to drachmas ahead of devaluation.

In addition, it is such a nonsense to believe that cheap currency equals export greatness. If this snakeoil economics is to believed then Zimbabwe would have been an export titan, the Philippines would have also been one of the most prosperous.

Besides, if the riots in Greece has been about maintaining political entitlements, then this won’t lead to increased investments and expansion in productive ventures, but rather, this increases the risks of a European version of Dr. Gono's Zimbabwean policy, once Greece does exit from the Euro.

To believe that banking or fiscal austerity based deflation would cause the Euro’s demise is loopy.

Throughout history, currencies usually die from hyperinflation or from wars[9]. Reducing the prospect of war has been one of the main pillars why the Eurozone Union was put to existence[10]. This leaves hyperinflation as the biggest threat.

The Mises moment is when a critical choice will have to be made between policies that could lead to hyperinflation or mass deflation.

I don’t think that today’s condition would warrant such decisions yet as central banks still have some leeway to move about.

---

[1] Bloomberg.com Rehn Sees Markets Misreading of EU Leaders’ Intentions on Greece, June 16, 2011

[2] Economist.com Piggybacking, Daily Chart, April 15, 2011

[3] Wall Street Journal Schaeuble Calls For ECB Compromise On Greece, Boosting EFSF-Spiegel, June 19, 2011

[4] See China to Assist in the Bailout of Greece, June 18, 2011

[5] Roubini Nouriel, Could the Eurozone Break Up? June 18, 2011

[6] Buttonwood’s Notebook Spending too much or taxing too little? Economist.com April 4, 2011

[7] CreditWritedowns.com Five Misconceptions Squashed, June 2011

[8] Tradingeconomics.com Greece Indicators

[9] Dollardaze.org, Demonetized Currencies

[10] See Buy The Peso And The Phisix On Prospects Of A Euro Rally, June 14, 2010

Central Planning Failure: China’s “Train Wreck” Edition

Think government knows what is best for us?

This from Charles Lane of the Washington Post (hat tip Cato’s Dan Mitchell) [bold emphasis mine]

For the past eight years, Liu Zhijun was one of the most influential people in China. As minister of railways, Liu ran China’s $300 billion high-speed rail project. U.S., European and Japanese contractors jostled for a piece of the business while foreign journalists gushed over China’s latest high-tech marvel.

Today, Liu Zhijun is ruined, and his high-speed rail project is in trouble. On Feb. 25, he was fired for “severe violations of discipline” — code for embezzling tens of millions of dollars. Seems his ministry has run up $271 billion in debt — roughly five times the level that bankrupted General Motors. But ticket sales can’t cover debt service that will total $27.7 billion in 2011 alone. Safety concerns also are cropping up.

Faced with a financial and public relations disaster, China put the brakes on Liu’s program. On April 13, the government cut bullet-train speeds 30 mph to improve safety, energy efficiency and affordability. The Railway Ministry’s tangled finances are being audited. Construction plans, too, are being reviewed.

Liu’s legacy, in short, is a system that could drain China’s economic resources for years. So much for the grand project that Thomas Friedman of the New York Times likened to a “moon shot” and that President Obama held up as a model for the United States.

Rather than demonstrating the advantages of centrally planned long-term investment, as its foreign admirers sometimes suggested, China’s bullet-train experience shows what can go wrong when an unelected elite, influenced by corrupt opportunists, gives orders that all must follow — without the robust public discussion we would have in the states.

This exemplifies what has been wrong in China. Similar to our previous accounts of ghost cities and Potemkin malls, what has largely been touted as the “Chinese growth miracle” seems more like a boom bust cycle from reckless centrally planned ‘delusions of grandeur’ financed by Chinese taxpayers.

And cracks appear to be widening as time goes by. Once malinvestments reach a “tipping point” or a critical mass then these cracks will break into a torrent.

Next, this further shows how wastage and inefficiency of government spending translates into huge negative externality costs. Centralization "orders that all must follow" translates to systemic fragility where losses are borne by everybody "could drain China's economic resources for years", while losses from decentralization are distributed hence anti (less) fragile (Nassim Taleb-Fooled By Randomness).

In addition, the above likewise exhibits how taxpayer resources are wasted on facilities or infrastructure projects that are hardly demanded for by consumers. Because non-profit oriented central planning decision making neglects the risk-reward tradeoffs and are instead guided by political goals, taxpayers end up absorbing the consequences of wrong decisions (sales can't cover debt service and safety issues).

Moreover, this is another example where government finds it too easy to spend someone else’s money. To quote the illustrious economist Milton Friedman “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.” Apparently this is a universal trait for politicians and bureaucrats.

And importantly, discretionary power over spending other people’s money becomes too much a temptation to resist claims over other people’s money as one’s own. Thus, concentration of power, enabled by arbitrary laws, serves as breeding and nestling grounds for corruption, in the above case "embezzlement".

Finally central planners believe that they know better of what society needs than of the individual through the markets. As the above also shows, they don’t.

This further validates the knowledge problem proposed by the great F. A. Hayek as evidenced by majestic mistakes which continually plagues the “unelected elite”:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design

State Aid and Political Centralization

The US appears to be headed for political centralization in spite of her Federal constitutional republic government framework.

And this is due to the growing dependence of US States on Federal Aid (“grants in Aid”) Programs.

Cato’s Chris Edwards enumerates why state aid programs negatively impacts the economy.

1. No Magical Source of Federal Funds

2. Aid Spurs Overspending

3. Aid Allocation Is Inefficient

4. Aid Reduces Innovation

5. Aid Is Intensely Bureaucratic

6. Aid Distracts Federal Politicians

7. Aid Breeds Irresponsibility

8. Common Problems Aren’t Necessarily Federal

Read Mr. Edwards explanation here.

The point is the broadening dependence of US states on federal government aid has been undermining the decentralized political power structure, and importantly, has been diminishing political and economic freedom.

And applied locally, even if the Philippines has yet to embrace federalism, any attempt to decentralize via Local Government Units would signify a sham if only to remain dependent on the largesse of the national government. (my latest article on MMDA should serve as an example)