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Federalism’s Hope

This post (lengthy, but with lots of pictures) strikes an uncharacteristically cheerful note: there is a chance to revive a sensible, efficient, competitive federalism. That hope does not rest on the libertarian pipedream of a Supreme Court that at long last restores our “lost Constitution” and overrules the New Deal. Nor does it rest on a hankering for a November victory for a GOP that promises to “devolve” power to the states. (The stupid party has no coherent federalism program; and in any event, for federalism purposes, federal election outcomes are epiphenomenal.) Rather, competitive federalism’s hope rests on one of the most resilient forces in American politics: sectionalism.

By “sectionalism,” I mean a division among states that is too deep and profound to be overcome by congressional compromise and techniques to produce state consensus at an administrative level (such as fiscal transfers, bureaucratic discretion, and intergovernmental networks). Sectionalism is essential: it is  only if and when the central government cannot generate a consensus or compromise among the states that  the federal system adheres or reverts to the constitutional baseline: competition among the states.

“Hope” does not mean “certainty.” Sectionalism, to be effective, must be organized and translated into a viable political strategy and program. It is far too soon to tell when or even whether such a strategy and program will materialize. It’s not too soon, however, to think about the possibility. The potential rewards are too great to be left on the table. Today’s post covers the empirics; tomorrow’s, some casual analytics.

Federalism’s Foundations

Why is sectionalism a necessary condition of competitive federalism? Here’s the basic theory, explored in The Upside-Down Constitution and stripped from a few pages in Geoffrey Brennan’s and James M. Buchanan’s The Power to Tax: federalism competition among states erodes state officials’ “surplus,” meaning the taxes or equivalent revenues that they get to distribute over and above the locally demanded level of public goods. (State attempt to collect such surplus will prompt productive firms and citizens to exit the jurisdiction, and there goes the surplus.) Therefore, states—meaning their political officials or elites—will act like producers in private markets and seek to organize surplus-protective cartels. To that end, states will seek to mobilize the central government. The purest form of federalism-as-state-cartel is a federal monopoly over taxation, coupled with a guaranteed revenue kickback to the states. The U.S. Constitution effectively blocks that solution, but it leaves the door open to close substitutes: federal conditional grants programs and transfer payments (e.g. Medicaid), federal minimum regulatory standards, etc.

Note that these aren’t centralizing solutions: the entire point is to generate state-level surplus that would otherwise fail to materialize. The feds will charge a price for the service, but they have to leave state political elites better-off than they would be in a competitive setting. (Otherwise, there’d be no bargain and the intergovernmental conspiracy would fail.) Thus, the cartel outcome is still a federalism solution: states get to spend federal funds, regulate on top of (but of course not below) federal minimum standards, etc. The basic fault line is not between centralization and localism but between two kinds of federalism: competition or cartel.

What can block the cartel outcome? Either a jurisdiction that would exit rather than be bought off (the antebellum South, Canada’s Quebec) or else, a sectional division that is sufficiently deep and wide to block federal cartels. The division has to be deep and nearly existential: if it weren’t, you could bribe fence-sitting states into a minimum cartelizing coalition. And it has to be sufficiently wide—not 50:50, but encompassing enough dissident states to block the majority states’ cartel initiatives. The magic number (American history suggests) is around seventeen—enough to block constitutional amendment proposals and to bottle up Congress.

Everyone knows what the federalism-protective sectional issue has been for most of our history: slavery and, after its demise, the protection of the racial caste system in the South. Those defining issues have mercifully disappeared from American politics. However, sectional divisions have re-formed around overlapping economic and cultural issues. Therein lies competitive federalism’s hope.

Empirics

My research assistant, the excellent Elizabeth DeMeo, has produced several maps showing the alignments of states in three controversial policy arenas: ObamaCare, environmental (clean air) policy, and labor issues. The maps are based not on congressional vote tallies but on the preferences of state officials, as reflected in states’ litigation positions (ObamaCare, environment) and their “domestic” policies (labor). All three issues are highly salient on the competition-cartel dimension. A pro-cartel state will want a big Medicaid program, expansive federal environmental programs, and federal policies to protect local pro-labor policies. Competitive states will want the opposite.
Map 1 shows the alignment of states in the pending litigation over the Patient Protection Act. Plaintiff states appear in red; amicus states in defense of the PPACA in blue.

Map 2 shows the alignment of states in three momentous clean air cases: Massachusetts v. EPA (2007) (greenhouse gases are “pollutants” for purposes of the Clean Air Act); American Electric Power v. Connecticut (2011 ) (no “public nuisance” cause of action for states over airborne pollutants); and Coalition for Responsible Regulation, et al. v. EPA (Link no longer available) (D.C. Cir., pending), the consolidated cases over the EPA’s post-Mass v. EPA greenhouse gas regulations (see here for discussion). States supporting the environmentalist position in one or more of the cases are shown in shades of blue; states opposing, in shades of red.

Map 3 is adapted from the Competitive Enterprise Institute’s splendid workplacechoice.org project. CEI’s classification is based on 23 indicators, including “right to work” laws but also, and primarily, policies having to do with public sector unions, such as government union density. Strongly or moderately pro-labor states appear in shades of blue; strongly or moderately “pro-taxpayer” states in shades of red

.

Got it? It’s essentially the same map every time. Map 4 shows states that are pro-cartel/pro-competition on all three issues:

One more thing: state revealed preferences on economic issues overlap with state preferences on social issues. Map 5 (adapted from The Upside-Down Constitution) shows states with conservative positions on three or four social questions (the Equal Rights Amendment, the death penalty, gay rights, and abortion):

Different issues, same map. Striking—no?

Two final empirical notes, by way of comments on the Table below.

First, the red states (Map 4) are the most competitive, dynamic, best-performing states in the nation. They include seven of the top ten states in  ALEC’s highly regarded Economic Outlook Rankings. (4th ed. 2011). (The rankings aim to predict future economic performance, based on fifteen policy variables that correlate highly with past performance.)  Conversely, blue states tend to be the least competitive. They include six of the worst ten performers, including the big three basket cases (California, New York, Illinois).

Second, red states tend to be net beneficiaries in the intergovernmental fiscal transfer game. Four of them (North Dakota, Alabama, South Dakota, and Virginia, on account of massive military and contracting expenditures) are among the Tax Foundation’s top ten net recipients; only two (Texas and Florida) are small net payers. Conversely, the blue group consists almost exclusively of net payers, including six of the top ten (Massachusetts, New York, California, Connecticut, Illinois, and Delaware).

More To Come

By any measure, what we have here is a highly consistent, stark picture of two roughly equal, cohesive groups of states—a competitive coalition, and a cartel cabal. Next post, some analytics and suggestions as to what this might mean for American federalism.

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