Paying the Piper May Not Justify Calling the Tune

Last week I wrote a post arguing that the federal government should not regulate the substance or the procedure of policing sexual misconduct by private universities. Some people tweeted in response that if universities did not want such regulation, they should simply not take any federal money.

This response is not persuasive, and not only for the issue of regulating the policing of sexual misconduct. The federal government may be justified in subsidizing an activity, but this does not make it wise to regulate those that accept those funds. For instance, the federal government has good reasons to provide universities with federal funds for medical research. Private enterprise will not conduct sufficient basic scientific research, because the fruits of such research cannot be easily patented and made profitable. But that research nevertheless provides the foundation for medical progress, saving lives and improving the pleasures of living. In other words, medical research has positive externalities that neither the market nor the family can provide. Hence there may be a role for federal funding of basic science in this and other areas.

These justifications do not by themselves create a reason for the federal government to offer funding only on the condition that universities accept federal regulations. As I explained in the last post—even if one were confident that universities with different values and student bodies should be subject to uniform rules—there is in fact reason to believe that the federal government will fail to arrive at optimal rules for a university to implement.

The point is more general than that raised by the specific example. It is often the case that government recognizes that some activity has positive externalities, and concludes that it should offer subsidies to encourage that activity. However, it does not follow that the federal government has the knowledge, impartiality, or freedom from interest group pressures to create the optimal rules surrounding the use of these funds, let alone the responsibility to impose rules on other aspects of the institution that receives them.

For instance, it seems likely that K-12 education generates social benefits, because everyone gains from at least a minimally educated populace, particularly in a democracy where everyone can vote. But we are not necessarily better off when the government operates the schools rather than simply funds their operation. And regulation is a form of mandating at least an aspect of operation. It may well be, of course, that the government should impose some regulations, but that decision needs to be independently justified. It doesn’t follow from the fact of government financing.

Moreover, as an original matter, is not at all clear that the federal government has the constitutional authority to regulate an institution for anything it wants simply because it provides the institution with funds. Congress is given the authority to tax and spend for the general welfare, but its regulatory authority is expressly enumerated. Shouldn’t the limitations of those enumerations have bite? To be sure, under Supreme Court case law the federal government can attach conditions to its funding so long as there is “a nexus” to its grant. But this interpretation of the Constitution does not seem justified by its original meaning. And when the federal government has access to trillions of dollars of taxpayer money, this kind of plenary authority allows it continually to expand the reach of the state.