The other day while driving up to the office I happened to come across the Diane Rehm show on National Public Radio. One of the callers suggested that spending on the war in Afghanistan was crowding out possible spending on teachers and police.

When Ms. Rehm's guest on the show rightfully pointed out that education and police were functions of state government, Ms. Rehm interjected: "Doesn't all the money come from the same pot?" Her question reflects Americans' lack of understanding of the brilliance of the Founders in formulating a federal system.

State governments ceded certain powers to the federal government and retained the rest. The 10th Amendment to the U.S. Constitution makes it clear that the powers of the federal government are only those specifically mentioned in Article 1, Section 8. These do not include financing education or local police.

Nor is the federal government supposed to serve as a funding source for state governments, despite the billions of dollars in the so-called stimulus package that have gone to state and local governments.

The fundamental governmental unit in the United States is the state. Now we have a situation where state governments are seen as a minor branch of the federal government, and federal officials are unaware that the powers of states are more numerous than those of the federal government.

In justifying the federal mandate in the health care bill requiring people to purchase health insurance, several members of Congress argued that this provision must be constitutional since states have for years required people to buy auto insurance. The fact that states can require their citizens to purchase insurance is irrelevant to whether the federal government can do so, for the 10th Amendment further says that those powers not specifically granted to the federal government are retained by the states or the people.

Thus states have lots of powers that the federal government does not have. Unfortunately, one would never know this looking at the paper, the television news, or any other media outlet or by listening to our congressmen and U.S. senators.

As most of those who graduate from our public schools will not have read James Madison's Federalist #45, it is worth quoting him here:

"The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the state governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several states will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the state."

The vast expansion of the federal government over our lives has not only taken over a large portion of our liberty, but it threatens the economy. When the powers of the federal government are few and defined, entrepreneurs and business owners can operate in an environment where they know the rules of the game.

When the federal government has unbounded powers, limited only by the ability to gather a majority of votes, no one knows what the rules of the game are or will be. This hampers investment, and is a primary reason that the unemployment rate remains so high and investment has remained lower than would be expected in a recovery. Business owners do not know whether they should hire additional workers on a full-time basis or what the costs of doing so will be.

Companies are sitting on a record $1.6 trillion in cash reserves as they await the next onslaught of federal legislation, the 2000-page financial industry regulation.

In the aftermath of TARP, the stimulus bill, the health care regulatory bill, financial regulation bill, and an energy regulation bill, another quote from Madison perhaps says it all, this time from Federalist #62:

"It be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man who knows what the law is today can guess what it will be tomorrow."

This article originally appeared in The Michigan View  (http://themichiganview.com) on July 9, 2010.