Tuesday, June 16, 2009

A Bailout for the States?

Abraham Lincoln sat on an old tree that had fallen next to the stream, finding restful the mellifluous gurgle of its waters. Heaven was ever so peaceful. Although he was sometimes bored from having little more to do than read and think, the burdens of his former life, especially from the great Civil War, seemed a distant storm that had blown past in the prevailing winds never to return.

Lincoln was preparing to turn his attention to the book in his lap when he heard the rustling of grass and leaves. He turned to see a man in a tri-cornered hat approaching.

"Alexander," he said.

"Good morning, Abraham," said Alexander Hamilton. "I trust you are well."

"It's difficult to be anything else here," said Lincoln, grateful that his flaws and failings had not prevented his passage through the Pearly Gates. He had come to learn that many viewed him as a great President. But in his heart he still saw himself as an awkward young man struggling to find his way in the world, and was surprised and embarrassed when others saw goodness in him that he didn't see in himself.

"No doubt about that, my friend. This place is much better than our previous habitat," said Hamilton. "By the way, are you following what's going on back there?"

"I can't say I pay close attention," said Lincoln. "I prefer peace of mind."

"There is much to be said for peace of mind," acknowledged Hamilton. "I would never dream of disturbing your peace of mind; except for some important unfinished business."

Lincoln suppressed the urge to sigh. Hamilton could be prickly and there was no point marring the Heavenly bliss.

"I believe that, in light of where we are, all of our Earthly business is done," he said.

"Not necessarily," said Hamilton earnestly. "Let me explain. The nation is suffering from a bad economic slowdown, triggered by excess financial speculation. The federal government is taking measures to stimulate the economy. But the economy continues to deteriorate. The states are running short of money. Some will be insolvent in a matter of a few months. One state, California, has already petitioned the federal government for assistance, but has been turned down. California has grown dramatically since you were President. It now has the eighth largest economy in the world, by itself. If its government has a fiscal crisis, the California economy could be severely disrupted. That, in turn, would hinder the national economy's recovery and perhaps even cause it to decline further."

"How can I do anything about this?" asked Lincoln.

"The new President, Barack Obama, greatly admires you," said Hamilton. "You could appear in one of his dreams and urge him to use federal money to bail out California."

Lincoln thought about Hamilton's suggestion. His brow furrowed deeper and deeper.

"I suppose this suggestion comes from your old idea of having the federal government assume the states' debts from the Revolution," he finally said.

"That would have unified the nation at an earlier time, and perhaps enhanced its growth and development," said Hamilton defensively.

"I don't think a bailout of the states now would be prudent," he said.

"Why not? The national welfare is at stake," said Hamilton. "The economy is in decline and there scant signs of recovery."

"A federal government that dispenses budgetary funding to the states would quickly become a domineering national government," said Lincoln. "That would be very dangerous."

"I thought you believed in a strong national government," said Hamilton.

"I believe in the Union," said Lincoln. "And the Constitution. The Constitution provides for a federal government of limited powers. All other powers are reserved to the States."

"But states rights was the battle cry of the Confederates," said Hamilton.

"The states play a crucial role in the Union," said Lincoln. "As the respository of all governmental powers not specifically conferred on the federal government, they can take advantage of the blessings of liberty and undertake all manner of new endeavors. They can experiment with new ideas, and promote the improvement and advancement of ideals, all without interference from the federal government. If, however, the federal government were to control the states' purse strings, it could also control their policies and governance."

"A strong national government was America's only defense against the retrogressive obfuscations of the slave states to preserve an abomination on the North American continent," cried Hamilton.

"Recall, my friend, that certain of the Northern states abolished slavery before the national government did," said Lincoln. "The abolitionist stances of these states paved the way for the federal government to do so during the exigencies of war. The slave states, by contrast, invoked the authority of the federal government to adopt the Fugitive Slave Laws to overcome Northern state law efforts to protect runaway slaves. National power can be used for good or evil. The states should bear the consequences of their poor fiscal judgments. Only then will their policies improve."

"But, Abraham, only the federal government has the means to raise the money needed to save the day," said Hamilton. "Its tax authority reaches much farther than the states. Remember what Franklin said: United we stand, divided we fall."

"Franklin was talking about how to fight a war," said Lincoln. "When it comes to the budgetary difficulties of the states, the question is who should bear the burdens of each state's spending decisions? If the answer is the federal taxpayer, then all notions of thrift and responsibility will be lost."

"I forgot," said Hamilton with a sigh. "You're the fellow who, legend has it, walked 5 miles or something like that to repay a debt of a few pennies."

"The federal tax structure is full of needless complexities and unfairnesses. Placing the burden of state expenditures on the federal taxpayer only exacerbates the undesirable effects of the federal tax structure," said Lincoln.

For a moment, nothing but the mellifluous gurgling of the stream could be heard.

"Well, I thought I'd try, " said Hamilton.

"Alexander, you've always had the nation's best interests at heart, and for that I commend you," said Lincoln. "Now, let us rest and leave the difficulties to those that created them."

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