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?

On Secession

Three blog posts recently on secession:

- OK, the first is technically on nullification - the Mises Institute interviews Tom Woods on his new book on state nullification. For those of you not familiar with him, Tom Woods is an Austrian-oriented historian that I have a big problem with when it comes to the 1920-21 depression. But that's another matter. His new book is on nullification.

- David Ribar, a fairly liberal economics professor at UNC, an alum of my alma mater (William and Mary), former professor at my other alma mater (The George Washington University), and one-time co-panelist at a Southern Economic Association conference, does a round-up of recent secession-happy Republicans, and reviews one case in particular.

I actually think secession isn't as unreasonable a position as a lot of people think it is. I don't see how you can admire the founders and admire Jefferson and the Declaration of Independence in particular and not be ethically and legally fine with secession. We cannot be a nation of, by, and for the people if the people are not free to withdraw their consent to their government (an enormous irony of Lincoln's famous address).

Nullification, I think, is a different matter. It may have been a tenable position in the early antebellum period, when the institutions of governance were being worked out. But decisions were made, institutions developed, and social contracts (much as I hate that term) were forged. Nullification now is repudiation of that institutional evolution. You cannot remain in the Union and repudiate the terms of Union at the same time. To a certain extent, then, I suppose all I'm really saying is that nullification amounts to secession. I oppose the very idea of nullification as a course of action that stands independent of outright secession.

So I actually wouldn't be as critical as Ribar is, but I wouldn't be as enthusiastic as Woods is. My question for secessionists isn't so much "how could you think this is legal or ethical", as it is "how could you possibly think this is necessary or desirable"? They are treating the dumbest move on the part of the South like it was its greatest triumph. I'm not as dismissive of the Confederacy as a lot of people are, and I hold a fairly nuanced view of the Civil War. But even a "less dismissive than average" view of the Confederacy I think can still be nothing more than a qualified disapproval. Even those positively disposed towards the South as a civilization have to recognize the attending evils of the Confederacy, and not just the evils but the unforgivable blunders. And secession is among those blunders. It's not a question of "can they do that?" for me. They can. It's a question of "why would you do that?". The leaders of the secessionist movements in the antebellum South need to be regarded, even by sympathetic Southerners, with "impotent fury" (to quote Harper Lee). One might defensibly say "with Lincoln's army marching and threatening my home, I'll pick up my gun and fight". One cannot defensibly argue that secession was intelligent, or well-advised, or in the interests of the South. It's even more infuriating that so many secessionists, then and now, uphold Washington specifically as an icon; Washington! - one of the greatest examples of what it means to be a "Union man".

Anyway, I'm not lawyer but the legal niceties of secession never bothered me all that much. The right to secede seems to me to follow naturally from the right to incorporate a state in the first place. Any statute on the books that would oppose that right simply begs the question. After all - it's precisely that statue book that presumably one is seceding from! The question of why one would even consider the prospect of secession, so long as the United States remains such a paragon of republicanism, liberty, and democratic representation - that is a question that I simply can't answer.

Anniversary of Constitutional Government in Virginia

Yesterday, June 29th, in 1776, Virginia adopted a constitution for the commonwealth. It was the first state to do so. Patrick Henry would serve as the first governor of the free and independent Virginia. For the better part of the following decade, Virginians would give their lives, their fortunes, and their sacred honor for the cause of American independence and union.

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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.

More on Keynesian policy

Ed Glaeser has an interesting and accurate, albeit somewhat unsatisfying explanation of our knowledge of fiscal policy solutions.

He starts out with the most important point: we really don't have a lot of hard evidence for any question of fiscal policy in a recession (I would add that we perhaps have somewhat more empirical knowledge about monetary policy). The reasons he gives are good: not much data, things change over time, every recession is different, etc. etc.

But he bypasses one of the most important factors: the endogeneity of fiscal stimulus. We stimulate the economy when it is weak, which means that any simple examination of the data is going to bias impact estimates downwards. Glaeser doesn't mention this, which is perhaps understandable - you don't necessarily want to drone on about endogeneity in a forum like the New York Times. But even if he doesn't mention that, he proceeds to plot change in the unemployment rate against stimulus dollars, by state, as if there is no endogeneity problem at all! Which means he fails to mention one of the most important problems with empirical work on fiscal policy, and then proceeds to do empirical work that deliberately flaunts this concern!

There's another issue I have with this post - like lot's of people today, Glaeser completely ignores the fact that we live in a federal republic. He writes:

"There is no equivalent consensus about fighting unemployment and economic downturn. For decades, the economics profession had been moving away from Keynes, but when the recession hit, no one had much of a viable alternative to Keynesian countercyclical spending. We’ve had a $787 billion recovery act — a great burst of Keynesian activity — and unemployment remains at 9.9 percent."

No observer that is both objective and well informed can claim that we've seen a "great burst of Keynesian activity". Perhaps we've seen this at the federal level, but it has largely been canceled out by spending cuts at the state and local level leaving no real "burst of Keynesian activity" to speak of. I forget what the GDP figures looked like in mid-2009. Perhaps we had a "spurt" of Keynesian activity as the bulk of the stimulus was pushed out, but it was nothing to write home about. Americans today blissfully ignore their states and counties. In normal times, that's a shame because these governments that are the closest to the people often provide the most innovative solutions to public problems. In downturns, it's a shame because the one thing states can't seem to do right is macroeconomic policy. We look to the federal government only, and ignorantly assume that there's been a "burst of Keynesian activity" when there hasn't been.

Who needs the 17th amendment, anyway?

Marc Ambinder skeptically describes one of the pet projects of the Tea Party movement: the repeal of the 17th amendment, initially passed in 1913, which required the popular election of U.S. Senators. Before the 17th amendment, Senators were elected by state legislatures. The argument goes that repealing the 17th amendment would restore states with the power to protect their interests from federal encroachment. I don't think very highly of the Tea Party movement for the most part, but this is actually something that I have always been quite supportive of. It's hardly at the top of my "to do" list, and I don't feel particularly oppressed by a popularly elected Senate, but I do think this change would remedy not only some of the dysfunctions of the federal government, but some of the dysfunctions of state governments as well.

One of the things that I think is important to keep in mind is that this probably won't change the ideological makeup of the Senate very much. There are very liberal state legislatures out there and very conservative state legislatures. If the 17th amendment were ever actually repealed, you can be confident that voters would pay even closer attention to state-level elections, making the electorate voting in the state legislature fairly comparable to the electorate that used to vote in Senators. What it will do is produce a Senate that is more cognizant of the relationship between the federal government and the state, regardless of ideology. In 1996 it was innovative and unusual to give the states such free reign over welfare policy. Unfortunately, the same sort of federalism was not apparent in the recent health reform. A Senate composed of representatives of the state legislatures would be expected to guard the freedom of the states to differentiate themselves on issues of domestic policy on a more regular basis.

With these new found responsibilities and freedoms, hopefully we would start to see states better equip themselves to solve the problems of their citizenry. We would hopefully see less of the non-sensical disconnect between revenue and spending policy apparent in states like California. Fewer states would constrain themselves with dysfunctional balanced budget requirements if they were on the front lines of policy, rather than the faceless provincial administrators that they largely are today. Stronger federalism, such as that which would likely result from repealing the 17th amendment, means a more robust American political economy, decision making that is closer to the citizenry, and a flexibility in policy making that isn't available when the federal government dominates every decision.

Of course, while bringing more decision making closer to the people, this reform would also reduce popular control over the federal government. Is that trade-off worth it? It's hard to say for certain. I'd guess a Senate appointed by state legislatures would probably be less likely to sabotage the popular will with (excessive) filibusters and (obstructive) parliamentary procedure. In that sense, an appointed Senate may actually improve the representativeness of Senate decision making, which today is more often than not held hostage by party leaders.

It's hard to predict exactly how this would go. It's a radical change, to be sure, but I don't think it's as ill-conceived as a lot of people suggest.

A Pew poll with some surprising results

At Coordination Problem, Steve Horwitz writes about a Pew poll with some seemingly contradictory results. However, he doesn't really write about what surprises me and what he writes about I'm not particularly surprised by.

Steve starts by remarking on the seemingly contradictory result that a lot of 18-29 year olds are positively disposed towards "libertarianism" and a lot are also negatively disposed towards "capitalism". Steve writes:

"At first this seems contradictory and one's first thought might be that young people don't know the meaning of one term or the other. Or both. But I have a different hypothesis. I suspect they might generally know the meaning of libertarian, or at least know enough to have a decent idea. But I also suspect that they think "capitalism" describes the status quo in the US. After all, don't both left-wing critics and right-wing apologists talk about our capitalist economy?"

I think he's probably right that respondents don't have quite as sophisticated an understanding of "capitalism" as readers and commenters of this blog or of Coordination Problem do, but I doubt that's the driving factor. The term I think the American public is less likely to have a clear definition of is "libertarianism". Ron Paul does a prettty decent job laying it out in plain language, but libertarians can't even agree amongst themselves about who's a "real" libertarian (not that I expect them to, granted). After adding a subset of the population familiar with Noam Chomsky's "libertarian socialism", and "libertarianism" is a vague term as well. I've come across lot's of Tea Partiers that think they're libertarians because they've heard the term float around, but if you really talk to them they're just run of the mill conservatives or populists. So I suspect at the very least there is ambiguity in both terms, if not more ambiguity in libertarianism.

On the other hand, though, there is nothing inherently paradoxical about this result at all. 45% of 18-29 year olds reported feeling positively about libertarianism and 48% of 18-29 year olds feel negatively about capitalism (a plurality in both cases). I surmised in this post that Austrian economists that don't like to work with aggregated data are at risk of committing a fallacy of composition, while economists who work with aggregates risk committing an ecological fallacy. But here, Steve commits an ecological fallacy by even thinking that this data presents a problem in the first place. There is no reason at all to think that the 48% of the young population that feels negatively about capitalism is containted in the 55% of the population that isn't familiar with or feels negatively about libertarianism, and that the 45% of the population that feels positively about libertarianism is contained in the 52% of the population that isn't familiar with or feels positively about capitalism. Bingo - problem solved. I don't think Steve is naive enough to commit the most blatant version of the ecological fallacy, of course. But the fact that he labels it "contradictory" I think suggests that he's at least committing a mild version of it. There's nothing at all in these results that presents an immediate contradiction.

Those weren't the numbers that surprised me. What surprised me was that among 18-29 year olds 43% felt positively about socialism and 49% felt negatively, and 84% felt positively about "states' rights" while 14% felt negatively. The first finding is very discouraging and the second is very encouraging.

43% felt positively about socialism? That seems enormous. Perhaps this is the GOP attempt to brand Obama as "socialist" backfiring. People say "well he's socialist, and I like what he's doing, so I guess I'm positive towards socialism". I'm guessing that's not a lot of it, but perhaps that's playing into it. It could also be the equation of social democracy with socialism. The definition might be somewhat merited, but if that's the case then "socialism" isn't really the "socialism" that we think about and talk about here and the finding isn't quite as disturbing. I think in America at least it's safest to understand the term "socialist" as "Marxist socialist" of some variety, just like we use our definition of "liberal" rather than Europe's definition. I'm perfectly comfortable calling social democrats "socialists" - there's good reason for it - but if we do that we need to clarify that it's not the American understanding of "socialist". I'm not sure what's driving this strong positive showing - maybe it's simply a generational thing (that seems to be indicated by the difference between ages). This generation didn't grow up with Communism. I didn't either, but at least I learned from history. The idea that we could forget this lesson so quickly is scary.

The encouraging number, of course, is the 84% support for "states' rights" which was beaten out only by "family values" and "civil rights". In the past, I've bemoaned the unfortunate association of "states' rights" with reactionary politics, and cited this as the source of the dismemberment of robust federalism in the United States. I'm not sure whether these poll numbers signal a turning point in this trend (there's strong support for "states' rights" among all age groups), but hopefully it is.

One last point I'd make is that it's really unclear exactly what feeling "positively" or "negatively" about these things means. I'm not sure that saying you have a "positive" feeling for a certain ideology suggests that that ideology represents you. If I were to answer this survey, for example, I would say that I was positive towards everything on the list except for socialism. I'm not a libertarian. I think it has positive contributions to make, but I wouldn't call myself a libertarian. And I'd say precisely the same thing about "progressivism". So how do we interpret a "positive" disposition? It's pretty vague.

Links on States, Localities, and Federalism

Longer-term readers know I have a deep interest in federalism and the role of the states in American society. Our federal organization provides the opportunity for a lot of experimentation ("laboratories of democracy"), decentralization of power, more responsive government, and the development of distinct regional identities that make our culture more robust. Unfortunately, these opportunities are often wasted.

One thing I've been concerned about is the role that state governments have played in aggravating the downturn. Balanced budget practices that cut spending dramatically at the state level when revenue is down have neutralized much of the federal stimulus. Analysts who don't take the time to look further than the federal budget insist that we've implemented massive fiscal stimulus. But the emphasis on the federal budget is meaningless. Total government spending in the U.S. - spending that includes the state and local governments - has been much less pronounced. That's a huge danger that many proponents of fiscal stimulus seem to be unaware of, and the many opponents of fiscal stimulus seem to ignore when they decry Keynesianism in America today. However, we do have some good news. The Wall Street Journal reports today that state tax revenue has started to stabilize, and since budget cuts have largely been a response to reductions in revenue, this is a good thing. It still probably won't add any deficit spending, but the cuts should stop. Recently, Megan McArdle blogged on state debt levels, although I think her treatment leans too heavily on the very real moral hazard concern and doesn't engage enough of the other important issues that need to be considered. Finally, Veronique de Rugy does an abysmal job engaging the issue of intergovernmental transfers and the stimulus, and draws a lot of misleading conclusions. Thankfully, it's been thoroughly covered and disputed, but it is unfortunate. The last thing politicians need is more sloppy research to work with.

More good news is shared by Coordination Problem. They link to a paper by Robert Nelson on sub-local government. Nelson argues that sub-local governance structures can operate more efficiently than state and federal governments, and should be created more freely. Peter Boettke, highlights the fact that as government gets bigger, it also may very well be getting more decentralized as a result of these sub-local governance structures. This reminds me of something I blogged about last summer: the work that my great-grandfather (H. Vernon Eney) did in the sixties writing a new constitution (which was never ratified) for the state of Maryland. Most of my blog post focuses on the role that the discourse surrounding "states' rights" played in the failure to ratify, but it's also worth pointing out that one of Eney's biggest goals was to make it easier to establish and adjust sub-state governance structures. He wasn't thinking of sub-local organizations in particular. My understanding is that he was thinking of more regional structures. But the idea is the same: local communities can govern themselves better, and hamstringing these governance structures by relying on a more rigid system of states and counties can be counter-productive. Eney always emphasized that states' rights does not have to be a reactionary position. It is a very reformist position. He thought that the federal government demonstrated that it was not up to the task of solving a lot of modern social problems. An effective reform movement would have to strengthen the states to accomplish anything.

I'd also highlight some posts that Evan has written in the past on localism that are somewhat related. More recently, he's written on "what localism should not be" (his answer: "a romantically quixotic attack on the very technologies that are good for it"). This post rightly denounces the tendancy of people to equate localism with primitivism. He's also written on localism, food production, and culture, and I responded with some agreement and some critique.

Talking Past Each Other: A Prediction for the Near Future

Quick - don't scroll down and read anything in this post. Answer this question in your head: did government spending make up a large or small share of GDP growth in the impressive 5.9% annualized growth rate for the fourth quarter of 2009?

Did you say it made up a large share? Sure - that seems to make sense. We have a liberal in office now. Keynes is cool again (yes he is - I don't care what you say about my extracurricular interests!). We have hundreds of billions in that stimulus package and over a trillion dollars in deficits. Any growth we see is because the government is running the printing presses 24/7 and kicking the can down the road for dealing with our real problems, right?

Wrong. Government spending growth in the fourth quarter was basically zero - actually slightly negative. What's going on here? What's happened is that Americans have systematically forgotten that they live in a federal republic, where a great deal of the work of government is done at the state and local government. While the federal government has been hanging lose, state governments have been tightening up. Keynes may be popular again, but Keynesian policy is for all intents and purposes non-existent. Any attempt at Keynesian fiscal policy is being neutralized by the state governments. That doesn't mean the federal stimulus is bad. We'd be in much, much worse shape without the stimulus. But taken as a whole, the American polity isn't doing any public stimulus right now.

Does that sound weird to you? That's exactly what I'm worried about. When people start arguing over whether fiscal stimulus works or not, and about how macroeconomic policy should be done in the future they're going to point to the easiest number - the federal deficit - and declare that it is largely impotent, not even considering that the federal government is not the only game in town. And in the rare instances that state budgets are discussed, the catchy phrase "fifty Herbert Hoovers" will inevitably be brought up, and inevitably the argument will get redirected toward "well Hoover was actually a closet Keynesian - Amity Shlaes told me so", etc. etc. - and it will turn into a revisionist history debate about Hoover and not the issue at hand: namely, that there is effectively no fiscal policy going on in the United States right now.

Stephen Gordon (HT: Mark Thoma) provides this comparison of the breakdown of Canadian GDP growth and American GDP growth for the fourth quarter of 2009:

As you can see in the second blue bar from the right, most of our GDP growth in the fourth quarter came from restocking inventories. In other words, in early 2009 when businesses were scared of the future, they just sold off their inventories instead of actually producing new goods. That's why output dropped then and so many people were thrown out of work (you don't need that many employees just to sell off inventory). Pretty soon, the inventories are spend down and need to be replenished - that's what happened in the fourth quarter. This is still very good - it still puts people to work - but as Gordon notes, it's a very unbalanced way to grow. What happens in mid 2010 when the inventories are restocked but demand is still tepid? A double-dip recession, that's what. There has been a lot of talk recently about a double-dip recession and this is why (this and the fact that the fiscal stimulus that does exist is going to begin to peter out then).

A stronger stimulus could balance this growth and generate a virtuous cycle of self-sustaining growth. If we had some infrastructure or public works projects, money would go into the hands of workers (consumption) and business (investment) for actual purchases that they have preferences for and place value on. Right now that's not what we're spending on - the people doing the spending right now are store owners who are replenishing their shelves, not business making new machines or households buying new goods. Just store owners stocking empty shelves. That's fine, but nobody seems to be buying anything off those shelves, so what happens next?

At the heart of all of this is the states - specifically the states' ridiculous proclivity for balanced budgets and aversion to borrowing. This is literally a nineteenth century budgeting outlook transposed onto fifty sovereign governments that make up the early 21st century's sole superpower. It's absolutely shameful. What's even more shameful is that I think we're largely oblivious to this. We're going to be judging how macroeconomic policy fared without even giving the states a second thought, and all these budget troubles at the state level are only going to convince state governments to be more tight-fisted in the future. What they should be doing is recognizing that there is no point in having a AAA bond rating if you impose borrowing limits on yourself. The market will impose that limit on you. If the market is starting to get nervous about the soundness of your finances, your bond rating will slip, the interest you'll have to pay will increase, or both. Far from taking a responsible, market oriented approach, state governments are willfully ignoring market signals, specifically credit market signals.

This is my prediction for the near future: that we are going to be talking past each other very, very soon. Soon the inventory cycle will run its course and growth will stall again. Unemployment might even increase again, and people are going to be blaming the Obama administration for their big-spending ways. State governors are going to make stump speeches in the fall for Republican candidates declaring how they tightened their belts through all this while Washington acted irresponsibly, so the Democrats must go. They're not even going to realize that macroeconomic fiscal stimulus was virtually non-existent this year, precisely because those state governments tightened their belts. Keynesian fiscal policy will not have been proven a failure - although many people will claim that it was. Yet again, Keynesian fiscal policy will not have been proven a failure because it will never have been tried.

A Non-Reactionary Case for States Rights

I recently finished reading Magnificent Failure, a book about the 1967 Maryland Constitutional Convention, which was chaired by my great-grandfather, H. Vernon Eney. The proposed constitution (which lost the ratification vote) had a variety of objectives, including stream-lining government, cleaning up the unwieldy incumbent document, reforming districting rules, and empowering the state government to meet the needs of an urbanizing and modernizing Maryland. Chairman Eney spoke often about the need for stronger state government in the face of the problems of urbanization and an expanding federal government. The report of the commission that was organized to study the need for a new constitution (which Eney also chaired) stated:

The most immediate threat to the welfare of the citizens of Maryland in the present age arises not from excessive power in their state government, but from a lack of power which prevents their state government from acting effectively... it must be recognized that... oppression can result as much from governmental
inaction, as it can from governmental action.

The commission (and later, the convention) position was that the growth of federal power was in part achieved by default, and attributable to the unwillingness of the states to use their inherent powers to meet the needs of their citizens. My personal view (and one that is very nearly expressed by Richard Homan, a Washington Post reporter who wrote about the convention at the time), is that this non-reactionary expression of states' rights - probably most forcefully held by Eney, of all the delegates - was doomed to failure given the charged climate of the late 1960s. Martin Luther King Jr. was assassinated on April 4, 1968 - only weeks before the constitution would be voted on by Marylanders. Baltimore was one of many cities ravaged by looting and riots, following the news. Governor Spiro Agnew received national attention for calling out the National Guard to suppress the riot, and brow-beating leaders in the black community for not taking a stronger stand against the violence. This position catapulted Agnew onto the presidential ticket with Richard Nixon in the next election. In this charged environment, the idea of "states' rights" pushed by convention delegates was unfairly maligned as a neo-Confederate expression of white privilege. Juanita Jackson Mitchell, the president of the Maryland NAACP and a delegate to the convention, singled Eney out for criticism on this matter.

Since 1968, the very term "states' rights" has been presumed to be reactionary and even "code" for racism. Ronald Reagan famously declared his support for "states' rights" at the Neshoba County fair in 1980, which many critics have identified as a thinly veiled sympathy for segregation. While I don't have time to address the Reagan incident here, I will say that I think the idea that "states' rights" is code for racism is lazy analysis and deeply flawed. It's very easy to cut corners by arguing that something you don't have evidence for is some sort of secret code, which by definition there is no evidence for. This reaction against the very idea of "states' rights" has prevented the states from maturing and reforming themselves into institutions that can support and serve their citizens, forcing the federal government to step in and provide solutions.

I was finishing this history of the Maryland Constitutional Convention at the same time that the health reform debate in Washington really began to pick up steam. It made me think of two things; first, the success of the 1996 welfare reform beyond anybody's expectations, and second, the rush to a national health reform despite promising developments in certain states.

In 1996, with Newt Gingrich's Republicans in ascendancy, the Clinton administration angered many liberals by instituting a welfare reform that would cut benefits and tighten eligibility requirements generally, but provide the states with enormous latitude for implementing these and other reforms in the spirit of Brandeis's conception of the states as "laboratories of democracy". Policy analysts have thoroughly gleaned lessons from the success stories, and these lessons have subsequently been adopted in other states. Welfare rolls were reduced tremendously by the reform, and welfare is now able to target the families that need the most support. In contrast, most health reform plans we hear today are proposals for change at the federal level. This is occurring despite the fact that some of the most promising reforms (for example, by Mitt Romney, a Republican governor of Massachusetts) are already being implemented at the state level. Instead of betting on the best federal solution, why don't we learn the lesson that Clinton taught liberal Democrats in the 1990s: forcing the states to take responsibility for reform does not preclude reform - and if any reform must occur at the federal level, experimenting with various approaches at the state level can provide valuable insights before we bet the farm on a single solution.

I'm not terrified of an active federal government, like many are. And there are real problems with health care that may merit government intervention. But we need to look back to the Clinton administration and consider the possibility that there is a role for wider states rights in this reform process.

"States' rights" should not have a negative connotation in this country. For a lot of people, I don't think it does. But for some of the most reform-minded people, the idea of state power is still highly suspect. Historically speaking, I suppose I understand that impulse. But I still don't think it's right. The Maryland Constitution of 1968 was not eventually ratified, but its attempt to empower the state of Maryland to solve the problems of Maryland shouldn't be lost on us. Perhaps I'm biased because of my admiration for H. Vernon Eney, but I think we can still derive lessons from his relatively conservative, card-carrying Democratic, thoroughly reformist approach to states' rights today.