The merits of a strong federal government?

I don't always agree with Paul Krugman, but here I do (sort of):

Ask yourself, why does the dollar area — also known as the United States of America — more or less work, without the kind of severe regional crises now afflicting Europe? The answer is that we have a strong central government, and the activities of this government in effect provide automatic bailouts to states that get in trouble.

Consider, for example, what would be happening to Florida right now, in the aftermath of its huge housing bubble, if the state had to come up with the money for Social Security and Medicare out of its own suddenly reduced revenues. Luckily for Florida, Washington rather than Tallahassee is picking up the tab, which means that Florida is in effect receiving a bailout on a scale no European nation could dream of.

Or consider an older example, the savings and loan crisis of the 1980s, which was largely a Texas affair. Taxpayers ended up paying a huge sum to clean up the mess — but the vast majority of those taxpayers were in states other than Texas. Again, the state received an automatic bailout on a scale inconceivable in modern Europe.

So Greece, although not without sin, is mainly in trouble thanks to the arrogance of European officials, mostly from richer countries, who convinced themselves that they could make a single currency work without a single government. And these same officials have made the situation even worse by insisting, in the teeth of the evidence, that all the currency’s troubles were caused by irresponsible behavior on the part of those Southern Europeans, and that everything would work out if only people were willing to suffer some more.

The caveat: Greece is not in trouble due to "the arrogance of European officials", they are in trouble due to the ineptitude of their own government which squandered the huge influx of foreign investment brought about by the Euro. Were all the problems due to Greek ineptitude? No, but they left themselves vulnerable and did not take responsibility.

This is the oily rag analogy writ large. If you leave open gas cans and oily rags laying about the garage you will likely bear no ill effects for months or even years, but one spark-- a real estate bubble a continent away-- and the conflagration can kill your family. Because foreign investors bought you gasoline and rags does not remove your responsibility to store them safely.

I get Krugman's point that strong central government can come to the rescue of peripheral players, but the alternate view is that perhaps the peripheral players should have less connection to each other in the first place. The savings and loan crisis of the 1980's would have been much smaller, or even non-existent, if the FDIC had not promised to backstop Neil Bush's Silverado "investments". Who would have given that criminal-- and all the other criminals who ran S&L's-- any hard-earned risk capital without that federal guarantee? Likewise, the Greeks would have been relatively spared if they had kept the drachma and instituted strong local regulations and tax collection.

Yes, everybody loves Marshal Dillon to ride in when the crisis occurs, but it seems that the mere prospect of a federal marshal being available allows officials to pay less attention to potential crises.