Federalism and States’ Responsibilities

Lee Hachadoorian on Oct 12th 2011

One of the more interesting issues to emerge during the recent Republican primary debates was the division of powers in our federal system of government. Often this gets called something like “states’ rights”, but that phrase is probably irreversibly entwined with Jim Crow and other state curtailments of civil rights. The present issues perhaps require a new term, along the lines of “states’ responsibilities”, which would emphasize things that states should do for their citizens—in the absence of federal action, or perhaps even in preference to federal action. Thus Texas passed a law requiring Texas public universities to charge in-state tuition based on Texas residency, but not based on immigration status. This law was relatively uncontroversial within Texas and enjoyed broad bipartisan support. Perry’s defenders argue that, in the absence of stronger immigration enforcement (which Perry claims to support), the only question for the state of Texas is whether they should have better educated illegal immigrants or worse educated illegal immigrants. From an economic development perspective, it’s almost a no-brainer. Similarly, Mitt Romney, who has defended his legislative record on health care in Massachusetts while criticizing last year’s federal Affordable Care Act (ACA), could argue that health care access is best left to the states. It would not then be inconsistent to argue that Massachusetts made the right decision in offering publicly subsidized health insurance with an individual mandate, while criticizing a similar, perhaps even identical program at the federal level.

But, while paeans to local control are common on both the right and the left, it is too easy to view mainstream discussion of federalism as merely strategic. Perhaps Perry is sincere, but the Republican primary audiences clearly have a long list of things that they don’t want federal or state governments to do, including pay for health care for an uninsured individual who will otherwise die, and pay for higher education access (or pretty much anything else) for illegal immigrants. David Weigel concludes that “Republican voters cheered [states’ rights], right until the policy in question was one they didn’t like.” The flip side of this is that liberals, when promoting social spending, have not typically said “But we shouldn’t do this at the local/state/federal level.” New York State paved the way with social spending in the early 1900s, and social spending moved to the federal level with, yes, the Depression, but also with the ascendancy to national politics of New York politicians such as Franklin Delano Roosevelt.

Missing is any discussion of which functions should be executed at which level of government. If conservatives think government should do A and B, while liberals think government should do A, B, C, and D, there seems to be little serious argument among either conservatives or liberals that A and C should only happen at the state or local level while B and D should only happen at the federal level—or not at all. Ron Paul, perhaps the severest Republican critic of federal power, avers that the states have the authority to pursue many of the environmental and labor regulations currently enshrined at the federal level. But, while he argues that the states within this federal system are laboratories to see what policies work and what policies don’t, I find it hard not to infer that, while states have the consistutional authority, he wishes they wouldn’t be so stupid as to actually use it.

For myself, I tend to think that the federal government activity should be much diminished, with a comparable strengthening of activity at the state and especially local level. I say “activity” rather than “power” because I tend to agree with the conservatives that the federal government is already acting well outside of its constitutional authority, accepted constitutional jurisprudence notwithstanding. But I probably have a significantly broader view than the conservatives of what authority should remain at the federal level. Coal plants, with their interstate and even global environmental impacts, should clearly be regulated at the federal level. I’ve blogged previously about how federal environmental law should not have preempted New York City’s attempt to regulate the mileage of its taxi fleet, but I see this as an error in jurisprudence rather than an argument against federal environmental regulation.

In general my view aligns pretty closely with a standard view in the economics of public finance, which is that the allocation function of government should take place at the local level, while the distribution function should be executed at the national level. The argument usually offered is that the allocation function—the decision about what to spend money on—is better directed by lower levels of government which are “closer” to the information needed to make these decisions, and which are better monitored by their smaller constituencies; while the distribution function—which determines the distribution of resources among classes—should be national because it may be subverted if organized over too small of a geographic area, as needy households will relocate to take advantage of more generous benefits in particular cities or states, while corporations and wealthier households will relocate to avoid redistributive taxation.

A problem emerges that much (perhaps most) government spending is not clearly one or the other. Having a transportation network benefits everyone by reducing the cost of moving people and goods, but paving roads benefits certain people (usually wealthier households), while building public transit systems benefits other people. The issues emerging in the Republican primaries, like health care and higher education, are paradigmatic examples of public goods which entangle the allocation and distribution functions. Without offering a full-fledged proposal, I will venture that a promising solution would be one that combines central funding with local control. In this regard, it’s eminently reasonable that states can request a waiver from the ACA and receive grants for funds that individuals and companies would otherwise have received. Not that this will placate the states rights’ crowd. And, of course, someone who accepted the argument for redistributive taxation at the national level might support individual transfer payments (such as a Basic Income Guarantee) while still questioning the wisdom of the ACA.

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