Robust Political Economy

I recently watched a video of Mark Pennington discussing "robust political economy" and thought it was very good. Arnold Kling is promoting it as well, which inspires me to share it here. The robustness of political economy that Pennington discusses is robustness to human error, frailty, ignorance, etc.

I highly recommend the talk, but I also want to highlight something that bothers me about it. This is essentially an argument for a constitutionally limited republic, and it also makes a good case for a constitutionally limited federal republic, in particular. Pennington goes a little off the reservation in acting as if he has produced a case for libertarianism, however, as if libertarianism and constitutionally limited federal republicanism are coterminous.

You see this with public choice theory a lot as well, where the economics and political science gets mixed in with a particular ideological prerogative. I think that's unfortunate. This is great political theory all around. In fact, he's highlighting exactly why I support a constitutionally limited government as well as why I make a big deal on here about federalism, and Pennington highlights these classic elements of liberal political economy by drawing attention to perhaps their most important feature: their robustness. I think Pennington pushes away people who agree with him on robust political economy but not on the libertarianism, and I think libertarians who listen to this risk thinking this elaboration of good political theory is somehow a justification of libertarianism.

I would also caution listeners to take what he says about "market failure" arguments with a grain of salt. He makes good points about robust political economy but I think he presents a somewhat distorted picture of market failure to facilitate a juxtaposition he wants to make (a juxtaposition which I think is entirely unnecessary and comes across as forced).

UPDATE: Arnold Kling highlights this conclusion which I endorse: "Societies benefit from continual experimentation. Since no one knows enough to design a perfect system, more experimentation is better.". Again, I'd highlight here the important difference between classical liberal robust political economy and modern libertarianism. One of the primary reasons for my unease at libertarianism is the threat that it poses to continual social experimentation. "There are a couple things we could try" is not a phrase you'll hear a libertarian say very often.

Federalism and Interstate Commerce Links

1. I'm not going to bother linking all of them (just the one that bugs me!), but Andrew Sullivan has been writing a lot about Mitt Romney's attempt to present his case on health reform, and the political strategies involved. One of the earlier posts that bothers me is titled "Romney Hides Behind Federalism". It's very troubling to me that federalism is seen as a fake solution that is whipped out for expedience - that Sullivan isn't even serious about the prospect that perhaps Romney did health reform when he was governor because he thought it was a viable decision for governors to make and implement. Instead, people want to turn Romney into a closeted Obamacare advocate. I've said from the beginning that I would have liked to see three things out of health reform. Obama disappointed me on two of those things and succeeded on the third. He did well by relenting and agreeing to John McCain's initial proposal to end (or at least seriously cut back) the tax subsidies on employer provided benefits. He still had an individual mandate, which I opposed, and he also didn't provide a whole lot of flexibility for state experimentation.

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2. Greg Mankiw links to an evaluation of ARRA (the stimulus) that finds a negative impact on jobs. What doest his have to do with the states and interstate commerce? Well, the study is done with state-level data and more crucially the model specification is unable to incorporate the impact of interstate commerce which is - to put it mildly - an enormous omission. One nice thing about the study is that it does attempt a sophisticated identification strategy. It uses two instruments - state sales tax intensity (to instrument the decline in state budgets - which I've always noted has been an important contractionary force that people ignore), and state highway funding formulas (which should be exogenous to the recession and are an important determinant of ARRA funding levels). I'm especially glad to see them instrument for state budget losses. But here's the problem - the only impact they can estimate is between states that received relatively more or relatively less stimulus. So if Virginia received $900,000 in stimulus and Maryland received $1,000,000 in stimulus they're going to try and identify the impact of that extra $100,000 of stimulus. Theoretically that could be fine - it'll provide a marginal effect that can be attributed to the whole package. My first (more minor) concern is that when you infuse a lot of money into an economy like this you're ultimately going to run into bottlenecks and - yes - crowding out at least on the margin and in certain areas. Is that marginal effect of the last $100,000 the same as the marginal effect of the first $700,000? Likely it's not.

That's a relatively minor concern, actually. The bigger concern is the interstate commerce point. A lot of commerce is done across state lines and that can't be accounted for with this sort of estimation strategy because the ARRA funds going to Virginia not only are not used to estimate job levels in Maryland - the job levels in Maryland are actually counted against the Virginia impact estimates. To simplify things, you can think of the model as asking "what is the effect of (VA stimulus-MD stimulus) on (VA jobs-MD jobs)". If MD stimulus positively impacts VA jobs or if VA stimulus positively impacts MD jobs, you're going to actually reduce the estimated marginal effect. I don't know if this sort of thing completely eliminates the prospect of state-level studies of fiscal multipliers, but it's certainly something that needs to be taken into account.

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3. Matt Yglesias has a good treatment here of arguments against the clear English of the commerce clause that amount to "well if you can do that, what can't you do?". It's never been an especially impressive argument. Yglesias points out some obvious things you can't do, including violating other Constitutional provisions like the first amendment and rights to due process. I've noted before that you also can't violate the general welfare clause - special priveleges for the sake of private welfare skirt Constitutionality in a real way that belies these claims about "if you can do that what can't you do?". But more importantly, these arguments demonstrate a real lack of commitment to the very idea of republican virtue. The Constitution is an important document because it limits the state, thereby protecting incursions on liberty. But since when has it been the only thing standing between the state and liberty? It has always been recognized that for a republic to succeed you need a virtuous populace. You need a populace that won't pursue inappropriate uses of power (or rectify the situation when such powers are pursued).

People act as if we can't have a meaningful and successful republic if the Constitution doesn't provide the ultimate and final demarcations of power. This is an excessively myopic critique, in my mind. We want to be able to achieve public ends with the republican institutions we have set up. Half the petitions raised by Jefferson in the Declaration were complaints about George III not letting the colonial legislatures pass laws that were for the public good. Since the beginning of the republic, it has been understood that we want a government that allows us to govern ourselves - that gives us the ability to make important public investments and decisions. A nit-picking Constitution threatens that, so instead we have a Constitution with real restrictions on the state - but restrictions that are open to interpretation, and yes - deliberation. It amazes me that this very idea that things are left open to deliberation and interpretation is viewed as a threat to liberty, rather than a source of real liberty.

In a free society, we deliberate within a framework of broad restrictions on the state, and if we want to keep that free society we have to preserve the republican virtues that are required for the preservation of liberty. The Constitution is a tool, not a master. It helps us preserve liberty - it's not a free pass on deliberation or a guarantee of success or an ultimate bulwark in defense of liberty. It's like a marriage. The contract itself doesn't guarantee anything. You have to work at your goal.

What's Obama doing in Wisconsin?

I haven't done a federalism post in a while, but I woke up and saw this on the Washington Post website and it pissed me off. What is Obama doing wading into this budget brawl in Wisconsin? I'm not following the Wisconsin situation very closely - it's not just about the budget, there is also union stuff there too (which is another fascination of this administration that I don't particularly share), but the point is these are issues to be decided in Madison, not Washington. There are some things like, say, funding for higher education where there is a case to be made that there's a national role in funding scientific research or something like that, in addition to state funding. I don't see how this extends to a state's own budget or the organization of public employees.

To block the measures, a bunch of Democrats in the legislature have skipped town in an effort to deny Republicans a quorum. This sort of thing has precedent, of course. Texas Democrats did it as recently as 2003 to stymie a Republican redistricting effort that they considered grossly unfair. Tom DeLay tried to sic the FBI on them (they politely declined the request), while Willie Nelson brought them whiskey in solidarity. It does back farther than that too - the Pennsylvania Anti-Federalists ditched their legislature to try to block ratification of the Constitution. I like to think of this sort of thing as creative filibustering. I hate that the filibuster has just turned into a super-majority requirement. If a Senator is willing to stand up and read from the phone-book for hours, that's fine. If a Senator wants to hole up in a cheap motel across state lines, that's fine. They exerted some effort. Now its just a pro-forma way of circumventing democracy.

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Federalism issues came up in Alex Tabarrok's discussion of "Keynesian politics" yesterday, too. I didn't elaborate too much at the time, but I oughta here. One of the policies he suggests was the somewhat amorphous "funding for states". I've come out against using federal funds to shore up state budgets in the past, and I did in the comment section of this post too. I wrote:

"The real failure of Keynesian politics, we should remember, is at the state level. The reason why government spending was fairly flat despite a huge increase in federal spending is because the feds were essentially filling a hole that the states were digging. How do [we] keep on pushing Keynesian politics AND prepare for the next crisis? Loosen state balanced budget requirements. Then federal fiscal policy will have some traction and states won't be hamstrung."

When the federal government starts solving state problems, states stop solving their own problems, and they don't implement the reforms that would help them do better. Don't get me wrong, I think we're better off since the federal government was able to fill the gap in this particular case than we would have been, but a federal rescue means more federal control, and it means that they can't focus on demand management because they're spending all their money on keeping states afloat.

Tyler Cowen notes a trend in states rejecting federal money as well, and suggests that this represents a new chapter in American federalism. Maybe - we'll have to see. I have always said that health reform needed to look more like welfare reform in the 1990s, with a lot more flexibility at the state level. I'd rather not have it as ad hoc as Cowen is describing here (Arizona getting a waiver to tighten certain requirements), and I'd rather see states bringing new innovative ideas to the table rather than just tightening up old ways of doing things - but we'll see how it goes.

States Rights and the Constitution in Virginia

Virginia House Speaker Bill Howell (R-Fredericksburg) has announced that the Virginia legislature will consider an amendment to the Constitution that will allow two-thirds of the state legislatures to repeal federal legislation. Right now, I have no idea how plausible this is - I am skeptical about how far it would get, but it's fascinating for at least two reasons.


Reason 1: It's a pretty decent reform that is not what Tom Woods has been proposing
First, like the repeal of the seventeenth amendment, I think this is actually an excellent Constitutional reform. The arc of Constitutional reform for most of the 19th and 20th centuries was in the right direction: expansion of democracy, incorporation of the states into Constitutional defenses of liberty, and the solidification of the federal government as a functional institution of governance. But what we've found is that while democracy and equality have benefited from the amendments we've passed, federalism has atrophied as a meaningful pillar of American society. The question is, how do we give greater primacy to federalism? For a while we tried to do it legislatively with various devolution measures, and these provided a mixed record of success. In the end, my assessment is that these devolution measures ended up giving the states more freedom of action, but essentially putting them on a federal allowance. Repealing the seventeenth amendment, which provided for the direct election of Senators, would elevate the role of the states in a meaningful way, and make the federal government accountable to the states. This amendment that will be considered by the Virginia legislature would appear to do the same. Winning two-thirds of the state legislatures for repeal is quite a hurdle, after all. It's a relatively conservative measure, in that sense.

Of course for my libertarian readers, I'm sure this brings Tom Woods' recent push for nullification to mind. Nullification is a tough subject, and I think this is especially true for thoughtful Southerners. On the one hand, if a law is blatantly unconstitutional, I don't think anyone would really balk at local officials who stand up against it. Lots of states have marijuana laws, and have moved against the Patriot Act, etc. I would argue that when nullification is used against truly heinous federal laws as Jefferson and Madison originally intended it to be used against the Alien and Sedition Acts, you don't have a groundswell of opposition to it. We have an inherent sense of what is appropriate without assuming a right of the states to opt-out of the decisions of the Union. Woods doesn't have to make his case on these counts - he'd be preaching to the choir. What bothers me about Woods is that he's trying to push an opt-out understanding of the Constitution that allows any state to appeal to even the most defunct and demolished understandings of what is "unconstitutional" to chart its own course. This is not federalism - this is a repudiation of our constitutional republic. Moreover, this is not what Howell is proposing at all.

I'm sure Tom Woods will embrace Howell's proposal in the Virginia legislature (and I'm sure that lots of normally objective liberals are going to howl against it make vague references to the Confederacy), but it's simply not the same as Woods' nullification. This is not an opt-out for states. This is a reform of the way federal legislation is passed that does provide a greater role for the states, but still relies on very broad consensus for action. Two-thirds of the states deciding they don't like one egregious piece of legislation is very different from South Carolina deciding it doesn't want to be bound by two-thirds of federal legislation because some crack-pot Constitutional "scholar" supplied them with a handful of bad arguments telling them they don't have to. This isn't the Tom Woods nullification plan - this is the anti-Woods states rights plan.

Reason 2: It opens Pandora's Box on the Constitution
Jefferson has remarked that the tree of liberty must now and then be fertilized with the blood of patriots and tyrants, and that constitutions should be scrapped and rewritten on a regular basis. I'll humbly disagree with Jefferson on this point, and submit that he probably would have come around to the modern view himself. Jefferson's primary concern was that he didn't want previous generations binding future generations to their understanding of government. In other words, Jefferson was a progressive and a democrat that wanted flexibility in government. What I think we've learned is that (1.) war is an awful and scarring way to keep government flexible, and (2.) the Constitution was constructed with deliberately flexible language for precisely the reasons that Jefferson was concerned about: the founders wanted to leave a wide open field for their descendants to chart their own destiny, within a structure that they carefully set to balance liberty, equality, and self-governance.

What does this have to do with Howell's proposal in the Virginia legislature? Howell is proposing to pass this amendment with a constitutional convention. Two-thirds of the state legislatures would have to call for a convention, at which three fourths of the states would have to ratify the amendment. No constitutional amendment has ever been passed in this way - all have originated in Congress. One of the concerns is that if a convention is called, the whole Constitution could be scrapped or modified. This is essentially what happened with the first Constitutional Convention, after all. Needless to say, I think this probably wouldn't be an ideal move. Our Constitution is working well, but I don't hold the document sacred. I'm more concerned that I don't think anyone today could write one that would improve it, and I'm especially concerned about the hostilities and passions it could raise. Of course, if a convention were called without incident or radical change, that could be a great step forward.

Federalism is weak in this country. The Constitution has served us well, but people don't place a lot of value on it and the ones that loudly proclaim the value they place on it often distort it to fit their own ideology. This Howell amendment probably won't pass, but at its heart it offers a very good proposal and raises some interesting issues.

Reason.com on Federalism and Race

More on this tomorrow hopefully, but just wanted to share this for now.

UPDATE: OK, so I never got to talk more about this. Needless to say, I think he's very right and this is a very real problem. See a personal connection of mine to this issue here. It's an old post of mine titled "A Non-Reactionary Case for States Rights", arguing for robust federalism and including a little bit of my family history as well. I'd really like to develop/write up that story and the lessons I personally draw from it and publish it somewhere some day. In the meantime - is anyone aware of any research tying views on race in America to views on federalism? It's gotta be out there. Is there a literature? Does anyone know anything about it?

Kling on State Budgets

I really hope Arnold Kling isn't actually this oblivious about the concern with state and local budgets, but he's been beating this drum for quite a while, so perhaps he is. He writes:

"That we do not need one penny of fiscal stimulus to save state and local government jobs. Just cut pay and keep the workers with the same budget. Everyone to my left seems to keep forgetting that option."

I think Kling would put me on "the left" so I suppose I'll answer for "the left". The concern is not:

(1.) Simply avoiding layoffs, nor is it
(2.) Closing budget gaps

The concern is maintaining effective demand. Of course we don't want massive layoffs of teachers, but simply preserving their jobs is not the goal. From a demand perspective, cutting pay while keeping jobs may be a modest improvement over the disruption of throwing more people out of work and keeping the rest at the same wage, but not much of one. Bottom line is - if you keep "the same budget", which Kling seems to think is such a virtue, you're keeping the same level of effective demand. Kling's solution does nothing and he just doesn't seem to realize it.

I agree we don't need one penny of federal dollars to solve the problem. What we need is for states to borrow whatever they can under current law (except for the basketcases like California, perhaps), repeal balanced budget requirements, and stop cutting budgets.