Tag Archives: Federalism

Living Constitution, Dying Liberty

14 Saturday Mar 2020

Posted by in Living Constitution, Originalism

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What would a “living Constitution” mean if the right wing “gave it life”, as it were? Your answer ought to reveal a truth you’ve probably overlooked if you’re a “living constitutionalist”.

The U.S. Constitution protects the rights of individuals against the coercive power of the state. It offers a thorough bulwark against that power not only by enumerating certain rights, such as the rights to free speech and free association, but also by recognizing the existence and sanctity of a complementary set of unenumerated rights. The Ninth Amendment states:

“The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” 

The nearly 250 years since the nation’s founding have seen a debate in judicial case law about whether the Constitution should be interpreted based on its original language, or whether modern social and technological realities should change the way it is interpreted. This pits constitutional “originalists” against advocates of a so-called “living Constitution”.

Antiquated? Or Inconvenient?

For example, there is disagreement about whether the Second Amendment right to bear arms is broad, or limited to certain very small arms, or whether it should permit no private ownership of arms at all. Another example: do modern sensitivities men that constitutionally unprotected “fighting words” now encompass opinions that are merely controversial? Do expressions of support for such policies as flexible wages really fall under the rubric of racism, “hate speech”, or fighting words? Here’s one more: does the (unenumerated) right to life allow the state (and so the law) to claim a greater interest in protecting the contentment of a healthy, but reluctant, prospective mother than in the life of her unborn child?

Three years ago, Randy Barnett asked a question about the living constitution amid the debate over the confirmation of Justice Neal Gorsuch, an avowed originalist. Barnett asked:

“Why would you possibly want a nonoriginalist ‘living constitutionalist’ conservative judge or justice who can bend the meaning of the text to make it evolve to conform to conservative political principles and ends? However much you disagree with it, wouldn’t you rather a conservative justice consider himself constrained by the text of the Constitution like, say, the Emoluments Clause?”

That question was followed-up recently by Glenn Reynolds: his thought experiment asks how a right-wing majority might fashion a “living Constitution”, an exercise that should chasten “living constitutionalists” on the Left. He first notes that efforts to fight terrorism can become a real threat to civil liberties. As such, they represent a form of living constitutionalism. Will your on-line behavior and your phone calls be closely monitored, perhaps searching for various keywords? Will formerly unreasonable searches and seizures be sanctioned by an anti-terror, living Constitution? We haven’t gone very far in that direction, even in the immediate aftermath of 9/11, but it’s easy to imagine a wave of support for such a revision under certain circumstances.

We’ve certainly witnessed erosions of civil liberties under the so-called “War on Drugs”. The courts have not always stood in the way of extra-Constitutional actions by law enforcement. A right-wing living Constitution might sanction certain searches, seizures, and confiscation of private property, to say nothing of the intrusion into the choices of individuals to use drugs privately. The same is true of the “War on Prostitution”.

Imagine a right-wing judiciary interpreting various forms of audio, video, and virtual reality content as violations of standards of “decency”. Imagine a case involving a restrictive FCC ruling of this nature, and the Court finding the FCC’s censorship constitutional at the federal level, not merely at a community’s level.

Imagine state legislation that forces the Court to weigh-in on whether federalism and states’ rights outlined in the Tenth Amendment outweigh the federal regulatory powers conferred by Article I’s Interstate Commerce Clause. Crazy? Maybe, but a conservative Court could decide that such an interpretation could permit state taxes, pollutants, or other restrictions on residents or businesses domiciled in other states.

Originalism? Or “Stretch” Originalism?

Reynolds mentions a few other possibilities, but without more detail, some of these examples seem muddled because the hypothetical interpretations could, conceivably, represent sound originalism, as opposed to conservative distortions of original intent. But perhaps these are all matters of degree, rather than kind. This includes the possibility of a conservative Court rolling back New Deal Court decisions related to price supports, wage supports, labor practices, and Social Security.

The same ambiguity applies to Reynolds’ brief discussion “one-man, one-vote” decisions of the 1960s, which leaned upon the Fourteenth Amendment’s Equal Protection Clause to effectively prohibit states from apportioning either congressional districts or state legislative districts in any way other than proportional representation. This can result in discrimination against certain interests in states having diverse geographies with dissimilar economies or cultures. A conservative court might well chip away at the one-man, one-vote principle out of deference to original intent. This might not be an unreasonable interpretation of the unenumerated powers of states contemplated by the Tenth Amendment.

Then there are so-called reproductive rights. The pro-abortion Left would be aghast, but not surprised, to see a conservative court reverse key decisions that have been made in their favor. The rights to “life, liberty and the pursuit of happiness” are mentioned explicitly in the Declaration of Independence, but not the Constitution. Nevertheless, they are presumed to be among those unenumerated rights recognized by the Ninth Amendment. Thus, with respect to abortion, the dividing line between original intent and living-constitutional overreach by a conservative Court is somewhat muddy. But in the view of the Left, a conservative Court might well reach radical decisions regarding the right to life.

Conclusion

The Constitution exists as a set of governing principles, but the founders’ intent was to  shield rights from fickle waves of majoritarianism, or even would-be despots. You might despise conservatism or statism, but this recognition should serve as a warning to heed the original text and its intent, not to view it as a mere nuisance to the interests of one’s agenda and fellow travelers.

I’ll close with Reynolds’ admonition to “living constitutionalists” of the Left:

“All of these [decisions] would be catastrophic for the left, and I’m sure I could come up with many more examples given time and space. Fortunately for the left, Judge Gorsuch appears to be devoted to interpreting the Constitution as it was understood by the Framers (in terms of its ‘original public meaning,’ to use the law professor definition), and not to embracing a living Constitution. … But my advice to those on the left attacking originalist approaches is this: Be careful what you ask for, because you won’t like it if you get it.”

EPA Concedes Puddles, Ditches to Owners

30 Thursday Jan 2020

Posted by in Environment, Federalism, Regulation

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Those who like their government served-up intrusive are reacting hysterically to the Environmental Protection Agency’s new Navigable Waters Protection Rule, which forbids the federal government from regulating waters that are not interstate waters or waters that aren’t or cannot be used in any way related to interstate commerce. The federal government will no longer have jurisdiction over normally dry, “ephemeral”  creek beds, private lakes and ponds unconnected to interstate waters, and most ground areas where rainwater pools, such as ditches on private property. This is a very good thing!

The emphasis of the new rule on interstate waters hews more closely to the constitutional limits of federal power than did the rescinded rule that had been imposed by the Obama Administration in 2015, which some called the Waters of the United States (WOTUS) rule (really an interpretation of “navigable waters”, or WOTUS as defined by the 1972 Clean Water Act). Christian Britschgi writes at Reason.com:

“The Obama-era rule was controversial from the get-go, with multiple Red states filing legal challenges claiming it exceeded the federal government’s authority to regulate water pollution. A slew of federal court rulings stayed the implementation of the rule in over half the states.”

Some of the straightforward differences between the new rule and WOTUS were mentioned above, but Anthony K. Francois of the Property and Environment Research Center gets into a bit more detail in his nice summary of these changes in federal authority.

In many cases, state and local governments already have regulatory authority over waters placed off-limits to the EPA. In fact, as Jonathan Adler wrote last summer, some of those state regulations are more stringent than the federal oversight now rescinded. That flies in the face of assertions by activists that states will be patsies in their dealings with property owners (the activists would call them “polluters”). So those who claim that the new rule will cause damage to the environment are really saying they only trust the EPA’s authority in these matters. They are also saying that no private citizen who owns property should be presumed to have rights over the industrial, commercial, or residential use of that property without review by the federal government. Under WOTUS, this represented such a severe abrogation of rights that it interfered with both productive activity and private enjoyment, not to mention the considerable confusion and costly litigation it prompted.

Weighing the costs and benefits of regulatory actions is a difficult undertaking. However, it is far too easy for regulators, with an imbalance of coercive power in their favor, to impose costly standards in locales where there may be little or no net benefit, and where individual property owners have no recourse. Regulators get no reward for protecting individual liberty and property rights, which skews their view of the tradeoff against potential environmental damage. Federal regulatory power is best kept within strict limits. The same goes for state and local regulatory power, but authority at those levels is at least more accountable to local interests on behalf of consumer, business and environmental concerns.

Central Planning Fails to Scale, Unlike Spontaneous Order

05 Tuesday Jun 2018

Posted by in Central Planning, Markets, Price Controls

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The proposition that mankind is capable of creating a successful “planned” society is at least as old as the Bronze Age. Of course it’s been tried. The effort necessarily involves a realignment of the economic and political landscape and always requires a high degree of coercion. But putting that aside, such planning can never be successful relative to spontaneous order of the kind that dominates private affairs in a free society. The task of advancing human well-being given available resources has never been achieved under central planning. It always fails miserably in this regard, and it always will fail to match the success of decentralized decision-making and private markets.

There are various ways to explain this fact, but I recently came across an interesting take on the subject having to do with the notion of scalability. Francis Turner offers this note on the topic at the Liberty.me blog. To begin, he gives a lengthy quote from a software developer who relates the problems of social and economic planning to the complexity of managing a network. On the topic of scale, the developer notes that the number of relationships in a network increases with the square of the number of its “nodes”, or members:

“2 nodes have 1 potential relationship. 4 nodes (twice as many) has 6 potential relationships (6 times as many). 8 nodes (twice again) has 28 potential relationships. 100 nodes => [4,950] relationships; 1,000 nodes => 499,500 relationships—nearly half a million.“

Actually, the formula for the number of potential relationships or connections in a network is n*(n-1)/2, where n is the number of network nodes. The developer Turner  quotes discusses this in the context of two competing network management structures: client-server and peer-to-peer. Under the former, the network is managed centrally by a server, which communicates with all nodes, makes various decisions, and routes communications traffic between nodes. In a peer-to-peer network, the work of network management is distributed — each computer manages its own relationships. The developer says, at first, “the idea of hooking together thousands of computers was science fiction.” But as larger networks were built-out in the 1990s, the client-server framework was more or less rejected by the industry because it required such massive resources to manage large networks. In fact, as new nodes are added to a peer-to-peer network, its capacity to manage itself actually increases! In other words, client-server networks are not as scalable as peer-to-peer networks:

“Even if it were perfectly designed and never broke down, there was some number of nodes that would crash the server. It was mathematically unavoidable. You HAVE TO distribute the management as close as possible to the nodes, or the system fails.

… in an instant, I realized that the same is true of governments. … And suddenly my coworker’s small government rantings weren’t crazy…”

This developer’s epiphany captures a few truths about the relative efficacy of decentralized decision-making. It’s not just for computer networks! But in fact, when it comes to network management, the task is comparatively simple: meet the computing and communication needs of users. A central server faces dynamic capacity demands and the need to route changing flows of traffic between nodes. Software requirements change as well, which may necessitate discrete alterations in capacity and rules from time-to-time.

But consider the management of a network of individual economic units. Let’s start with individuals who produce something… like widgets. There are likely to be real economies achieved when a few individual widgeteers band together to produce as a team. Some specialization into different functions can take place, like purchasing materials, fabrication, and distribution. Perhaps administrative tasks can be centralized for greater efficiency. Economies of scale may dictate an even larger organization, and at some point the firm might find additional economies in producing widget-complementary products and services. But eventually, if the decision-making is centralized and hierarchical, the sheer weight of organizational complexity will begin to take a toll, driving up costs and/or diminishing the firm’s ability to deal with changes in technology or the market environment. In other words, centralized control becomes difficult to scale in an efficient way, and there may be some “optimal” size for a firm beyond which it struggles.

Now consider individual consumers, each of whom faces an income constraint and has a set of tastes spanning innumerable goods. These tastes vary across time scales like hour-of-day, day-of-week, seasons, life-stage, and technology cycles. The volume of information is even more daunting when you consider that preferences vary across possible price vectors and potential income levels as well.

Can the interactions between all of these consumer and producer “nodes” be coordinated by a central economic authority so as to optimize their well-being dynamically, subject to resource constraints? As we’ve seen, the job requires massive amounts of information and a crushing number of continually evolving decisions. It is really impossible for any central authority or computer to “know” all of the information needed. Secondly, to the software developer’s point, the number of potential relationships increases with the square of the number of consumers and producers, as does the required volume of information and number of decisions. The scalability problem should be obvious.

This kind of planning is a task with which no central authority can keep up. Will the central authority always get milk, eggs and produce to the store when people need it, at a price they are willing to pay, and with minimal spoilage? Will fuel be available such that a light always turns on whenever they flip the switch? Will adequate supplies of medicines always be available for the sick? Will the central authority be able to guarantee a range of good-quality clothing from which to choose?

There has never been a central authority that successfully performed the job just described. Yet that job gets done every day in free, capitalistic societies, and we tend to take it for granted. The massive process of information transmission and coordination takes place spontaneously with spectacularly good results via private discovery and decision-making, secure property rights, markets, and a functioning price mechanism. Individual economic units are endowed with decision-making power and the authority to manage their own relationships. And the spontaneous order that takes shape remains effective even as networks of economic units expand. In other words, markets are highly scalable at solving the eternal problem of allocating scarce resources.

But thus far I’ve set up something of a straw man by presuming that the central authority must monitor all individual economic units to know and translate their demands and supplies of goods into the ongoing, myriad decisions about production, distribution and consumption. Suppose the central authority takes a less ambitious approach. For example, it might attempt to enforce a set of prices that its experts believe to be fair to both consumers and producers. This is a much simpler task of central management. What could go wrong?

These prices will be wrong immediately, to one degree or another, without tailoring them to detailed knowledge of the individual tastes, preferences, talents, productivities, price sensitivities, and resource endowments of individual economic units. It would be sheer luck to hit on the correct prices at the start, but even then they would not be correct for long. Conditions change continuously, and the new information is simply not available to the central authority. Various shortages and surpluses will appear without the corrective mechanism usually provided by markets. Queues will form here and inventories will accumulate there without any self-correcting mechanism. Consumers will be angry, producers will quit, goods will rot, and stocks of physical capital will sit idle and go to waste.

Other forms of planning attempt to set quantities of goods produced and are subject to errors similar to those arising from price controls. Even worse is an attempt to plan both price and quantity. Perhaps more subtle is the case of industrial policy, in which planners attempt to encourage the development of certain industries and discourage activity in those deemed “undesirable”. While often borne out of good intentions, these planners do not know enough about the future of technology, resource supplies, and consumer preferences to arrogate these kinds of decisions to themselves. They will invariably commit resources to inferior technologies, misjudge future conditions, and abridge the freedoms of those whose work or consumption is out-of-favor and those who are taxed to pay for the artificial incentives. To the extent that industrial policies become more pervasive, scalability will become an obstacle to the planners because they simply lack the information required to perform their jobs of steering investment wisely.

Here is Turner’s verdict on central planning:

“No central planner, or even a board of them, can accurately set prices across any nation larger than, maybe, Liechtenstein and quite likely even at the level of Liechtenstein it won’t work well. After all how can a central planner tell that Farmer X’s vegetables taste better and are less rotten than Farmer Y’s and that people therefore are prepared to pay more for a tomato from Farmer X than they are one from Farmer Y.”

I will go further than Turner: planning can only work well in small settings and only when the affected units do the planning. For example, the determination of contract terms between two parties requires planning, as does the coordination of activities within a firm. But then these plans are not really “central” and the planners are not “public”. These activities are actually parts of a larger market process. Otherwise, the paradigm of central planning is not merely unscalable, it is unworkable without negative consequences.

Finally, the notion of scalability applies broadly to governance, not merely economic planning. The following quote from Turner, for example, is a ringing endorsement for federalism:

“It is worth noting that almost all successful nations have different levels of government. You have the local town council, the state/province/county government, possibly a regional government and then finally the national one. Moreover richer countries tend to do better when they push more down to the lower levels. This is a classic way to solve a scalability problem – instead of having a single central power you devolve powers and responsibilities with some framework such that they follow the general desires of the higher levels of government but have freedom to implement their own solutions and adapt policies to local conditions.” 

Secession and Other Remedies for Intrastate Revolt

14 Monday May 2018

Posted by in Federalism, Regulation, Tyranny, Uncategorized

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How many states will we have in the Union in twenty years? Probably 50, but there’s an outside chance that the number will be 55 plus. That could include a split of upstate New York from New York City, downstate Illinois from Chicagoland, eastern from western Washington State, eastern from western Oregon (or eastern Oregon combining with Idaho), and a division of California into as many as six states, as one proposal has it. There are secessionist movements alive in all of those states and it has happened before, as Glenn Reynolds notes in his recent paper “Splitsylvania: State Secession and What to Do About It“.

The origins of state boundaries and state governments were probably based on combinations of natural geographic features and confluent economic and political interests existing at the time. It would be surprising if those factors remained in static alignment over time, however. For various reasons, West Virginia seceded from Virginia many years ago, and Tennessee was once part of North Carolina. But to the extent that interests diverge within states, would a series of secessions promote better representative government? Reynolds’ approach to this question is fairly even-handed, though he apparently leans toward less disruptive solutions to the kinds of grievances voiced by secessionists.

Secession is a complex process; it obviously involves a major task in establishing a new state governmental apparatus. Also, legislative roadblocks to secession movements exist at both the state and federal levels. Nevertheless, there is great disaffection among rural interests in the states mentioned above for the policies they say are forced upon them by “urban elites”, as Reynolds calls them. At present, the secession of rural areas would tend to benefit republicans at the federal level, as two new Senate seats would be created to offset the seats held by democrats elected in more urban areas. Conceivably, however, the same process could work in reverse in other states, such as Texas. Even the proposal for six Californias seems designed to at least neutralize any possible negative impact on democrats in national politics.

Reynolds’ paper outline a few ways in which interests represented by legislative minorities, such as rural populations, could be better served without a step so drastic as secession. State regulation is often what rankles secessionists. To add fuel to the fire, states are free to adopt rules that are more strict than rules established under federal legislation, if they so choose, but never rules that are less strict. Today this applies to wages, working conditions, gun regulation, and environmental law. Reynolds suggests turning this on its head:

“The federal government’s legislative role has traditionally been the opposite: To use (as in the case of the 1964 Civil Rights Act) a national majority to ensure that local majorities can’t oppress local minorities. I thus suggest that federal laws regulating these key subject-matter areas be recast to pre-empt more restrictive state laws, meaning that urban regions would be unable to impose stricter laws on less- powerful rural areas. If this seems too inflexible, perhaps that pre-emption should in some cases be defeasible at the county level; if the government of a county affirmatively wants to accept stricter state regulations, then it may do so, but if not, then the federal regulations are a ceiling, as well as a floor.”

Reynolds contends that this approach would be relatively easy to defend against state challenges. The idea that federal rules provide minimum standards of regulation is only one interpretation of the Supremacy Clause of Article VI of the Constitution. There is no reason why federal legislation cannot be written in the way Reynolds describes. Moreover, Reynolds asserts that the Guarantee Clause of Article IV, which assures that mandates are to be established according to republican principles, could be used to buttress this argument. But he offers another remedy to curb secessionism among rural voters that states could exercise:

“There is nothing to stop a state from being mindful of the differences between urban and rural areas when crafting legislation or regulations, after all. States could adopt a local-option regulatory scheme relating to key subject areas on their own, and by doing so would lighten their footprint in rural areas and lessen the likelihood of festering resentments.”

Perhaps that’s hoping for too much. State majorities are unlikely to cede power to rural minorities, but it’s nice to imagine that sort of cooperation. There is no question that this sort of state regulatory approach would protect local interests from the tyranny of one-size-fits-all state regulation, but it wouldn’t eliminate the burdens created by the standard interpretation of federal supremacy.

In general, federal preemption of stricter state laws is no less consistent with the principles of federalism than federal pre-emption of more lenient state laws. One could even argue that the best way to apply federal supremacy depends on the issue, so there is some symmetry in Reynolds’ proposal. In terms of representative democracy, it is less an evil than federal preemption of less restrictive laws. It does what a democratic republic is supposed to do: protect minorities from the tyranny of a majority.

Secession from states is an intriguing possibility. Perhaps it is even the best approach in some cases. Nevertheless, Reynolds’ suggestions for revising federal and state regulatory approaches would be less costly and would avoid a nationwide race to subdivide states in order to gain a federal political advantage.

Benefit Mandates Bar Interstate Competition

30 Thursday Mar 2017

Posted by in competition, Health Care

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The lack of interstate competition in health insurance does not benefit consumers, but promoting that kind of competition requires steps that are not widely appreciated. Most of those steps must take place at the state level. In fact, it is not well known that it is already legal for states to jointly create interstate “compacts” under Obamacare, though none have done so.

The chief problem is that states regulate insurance carriers and the policies they offer in a variety of ways. Coverage mandates vary from state to state, as do rules governing the coverage of pre-existing conditions, renewability, dependents, costs, and risk rating. John Seiler, writing at the Foundation for Economic Education, offers a great perspective on the fractured character of state regulations. Incumbent insurers within a state have natural advantages due to their existing relationships with local providers. Between the difficulty of forming a new network and the costs of customizing policies and obtaining approval in multiple states, there are significant barriers to entry at state lines.

Federalism is a principle I often support, but state benefit mandates and other regulations are perverse examples because they restrict the otherwise voluntary and victimless choices available to a state’s consumers. Well, victimless except perhaps for in-state monopolists and their cronyist protectors in state government. Many powers are reserved to states under the Constitution, while the powers of the federal government are strictly limited. That’s well and good unless state governments infringe on the rights of individuals protected by the Constitution. In particular, the Commerce Clause prohibits state governments from obstructing the flow of interstate commerce.

Here is a bit of history surrounding the evolution of state versus federal control over insurance markets, as told by Pennsylvania Insurance Commissioner Teresa Miller (as quoted by reporter Steve Esack):

“Since the 1800s, the U.S. Supreme Court held individual states, not Congress, had the power to regulate insurance companies. The high court overturned that precedent, however, in a 1944 ruling, United States v. South-Eastern Underwriters, that said insurance sales constituted interstate trade and Congress could regulate insurance under the U.S. Constitution’s Commerce Clause.

But states cried foul. In response, Congress passed and President Harry S. Truman in 1945 signed the McCarran-Ferguson Act to grant a limited anti-trust provision so states could keep regulating insurance carriers. The law does not preclude cross-border sales. It means insurance companies must abide by different sets of rules and regulations and laws in 50 states.“

Congress obviously recognized that state regulation of health insurance would create monopoly power and restrain trade, even if states place bridles on insurers and impose ostensible consumer protections. The solution was to exempt health insurers from broad federal regulation and anti-trust prosecution by the Department of Justice.

Last week, the House of Representatives passed a bill that would repeal McCarran-Ferguson for health insurers. However, that would do little to encourage cross-border competition as long as the tangle of state mandates and other regulations remain in place. The regulatory landscape would have to change under this kind of federal legislation, but how that would happen is an open question. Could court challenges be brought against state regulators and coverage mandates as anti-competitive? Would anti-trust actions be brought against incumbent carriers?

Robert Laszewski has strong objections to any new law that would allow interstate sales of health insurance as long as state benefit mandates remain in place for “local legacy” carriers. In particular, he believes it would encourage “cherry picking” of the best risks by market entrants who would be free of the mandates. Many of the healthiest individuals would jump at the chance to purchase stripped down, catastrophic coverage. That would leave the legacy carriers under the burden of mandates and deteriorating risk pools. Would states do this to their incumbent insurers without prodding by the courts? Would they simply drop the mandates? I doubt it.

No matter the end-state, there is likely to be a contentious transition. Promoting interstate competition in the health insurance market is a laudable goal, but it is not as simple as some health-care reformers would have us believe. Real competition requires action by states to eliminate or liberalize regulations on benefit mandates, risk-rating and pre-existing conditions. Ultimately, the cost of coverage for high-risk individuals might have to be subsidized, whether means-tested or not, through a combination of support from the states, the federal government, and private charities. And of course, interstate competition really does requires repeal of the health insurance provisions of McCarran-Ferguson.

Governments at any level can act against the well-being of consumers, despite the acknowledged benefits of decentralized governance over central control. Benefit mandates, whether imposed at the federal or state levels, are inimical to consumer choice, competition, efficient pricing, and often to the very concept of insurance. Those aren’t the sort of purposes federalism was intended to serve.

Government As Hazard

10 Friday Feb 2017

Posted by in Big Government, Markets

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national-bird

Lots of people think government can do good things, even if its always in fashion to wink about the state’s legendary incompetence. It can do lots of things, but the only way it can do them is by exercising its power to coerce. It’s simply impossible to form an effective government without granting it that power. We must hope it will do only good things, and there is reasonable consensus that its basic functions are good, at least in kind: national defense, law enforcement and protection of basic rights, and a judicial system. The mere performance of those functions requires coercive power, and funding them requires the coercive power of taxation.

To make things simple, for now let’s stipulate that all agree on both the necessary functions of government, some minimal scale and scope of those functions, and the taxes necessary to pay for them. We may all feel that we are better off. Anything in excess of that minimal portfolio as might be desired by an individual or group would necessarily make some feel better off and some feel worse off. Additional taxes would have to be collected to pay for it, and the activities themselves might be seen in some quarters as inappropriate, wasteful, or intrusive. Now, the coercion of the state becomes more binding on some individuals and groups. We no longer have a win-win proposition, and that is what  distinguishes marginal government activity from marginal private exchange. The latter is always predicated on mutual benefits for the transacting parties. In the jargon of economics, these voluntary, private trades are Pareto-improving moves, meaning that some individuals are made better off and no one is made worse off. In general, if all mutually beneficial trades are exploited, the final result is Pareto optimal (after Vilfredo Pareto), because no further activity can make anyone better off without making someone else worse off.

The limited government described in the hypothetical sounds as if it might be Pareto optimal, but let’s add a little more realism. Are there additional government functions that would improve well being without doing harm to anyone? There is general agreement that government should provide for other “public goods”, which would otherwise be under-demanded in the market, and under-provided, due the nonexclusive nature of their benefits (think public parks). Once those are provisioned, the outcome may be Pareto optimal. There may be unanimous agreement, as well, that government should take actions to mitigate certain external costs arising from private activity. (If some of the costs of private activity are not internalized, then those market transactions fail the test of Pareto improvement). These additional government functions require coercive power, of course. Now we are into more complex issues of public choice. The provision of goods with at least some public benefits requires judgement as to degree, and judgement is necessary as to the appropriate degree of mitigation of external costs when they are an issue. In other words, Pareto-improving moves get scarce once government assumes responsibilities beyond those described in our original hypothetical.

As the scale and scope of government grow, its coercive force must advance as well. Therefore, unanimous consent for this growth, and even widespread consensus, will be impossible to achieve. Its size will reach a level at which a substantial share of the population will assume the roles of “public servants”, all having a vested interest in the state’s continued growth, if only to boost their own pay. The potential conflict of those personal interests with the public interest could not be clearer. That’s a good reason to support strict limits on the size and power of government, not to mention restrictions on the power of public employees to unionize.

Those who wish for government to play a dominant role in society might think it’s all for the good. They might support changes in the rules of governance that facilitate the dominance and coercive power it confers upon them. That might include, for example, pushing the use of executive authority to extreme levels based on interpretations of complex, but often vague, legislation. It might include changes in parliamentary rules that make it easier for thin majorities of legislators to work their will. No doubt these rule  changes will lead to Pareto-degrading actions, though the ruling faction will be quite happy with their new powers.

But what happens when a shift in the balance of public opinion brings new leaders to power? Those leaders will inherit rules that facilitate their agenda and authority to exercise coercive power. No one at any point along the ideological spectrum should dismiss this sort of risk. That’s the spirit of a recent Bryan Caplan post, “Limited Government as Insurance“. Stretching powers in the service of particular policy goals may well backfire when those powers become available to an opposing faction:

“Imagine going back in time to January 20, 2009. Obama’s Inauguration Day. You’re a cheering fan. On that day, an angel appears and makes you this offer: If you give up on Obama’s best ideas, none of Trump’s worst ideas will happen either. Obamacare will never happen – but neither will Trump’s immigration policies. Would you take that deal?

I know, it’s a galling hypothetical. You want the good stuff without the bad stuff.“

Caplan characterizes strict limits on government as a form of insurance against the risk of swings in the balance of power. He also considers plausible reasons for rejecting such a deal: “the arc of the moral universe”, or, you think your side will ultimately win, and will win for all time; and “asymmetric hyperbole”, or, the greatness of your policies outweighs any damage the other side can do with the same powers. If you really believe those things, it might seem reasonable to take your chances on an expansive state with expansive powers! A preference for limited government, however, does not require the contorted logic required to reject this insurance.

The U.S. Constitution includes many provisions originally intended to limit government and the exercise of coercive power. Those protections from the state have eroded over time, a process hastened by increasingly flexible judicial interpretations of the founding document. Caplan notes that there are a number of mechanisms by which limited government can be made durable:

“Supermajority rules require more than a majority to act. Division of powers makes it hard for government bodies to accomplish anything on their own. Judicial review allows judges to invalidate acts of government. Federalism greatly reduces the cost of “voting with your feet.” If you think these institutions aren’t working, the obvious solution is to strengthen them. Impose more supermajority requirements. Divide more powers. Overturn legislation that fails to get support from six, seven, eight, or all nine Supreme Court Justices. Make states pay for their own spending with their own taxes, not federal grants.“

Then comes the most insightful, but most disheartening, part of Caplan’s post: real steps to limit government will never be taken:

“Limited government helps everyone in the long-run, but immediately hurts the ruling party. They fought hard to win power; now that they have it, they yearn to flex their muscles.“

We might see a federal department abolished here or there, and we might see certain regulations rolled back, but those steps will be selective. The powers that put them there in the first place can be reapplied in the future. We might see more “business-friendly” actions, but those will be selective as well. In other words, corporatism will persist. And we might see tax cuts, but that won’t reduce the government’s absorption of resources, which is driven by the spending side. While this sounds discouraging, I nevertheless admire Caplan’s characterization of limited government as insurance against the other side’s bad policies. If only we could pull it off!

A Healthy Fetish For Federalism

18 Monday Apr 2016

Posted by in Federalism

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outrage

When I say I’m a federalist, I mean that I support a system in which powers are divided between different levels of government. Federalism establishes co-sovereignty between a central government and regional governments. It does not mean that the federal government is always dominant as is sometimes suggested: the Supremacy Clause under Article VI of the U.S. Constitution covers conflicts of law between the federal government and lower levels of government. Elsewhere, however, the Constitution places strict limits on the powers of the central government by defining an enumerated set of federal powers. All other powers reside with the people or their state governments, ideally constitutional republics in their own right.

Federalism is thought to minimize conflict within a nation by allowing law to be formulated differently within sub-jurisdictions. In this way, it has a limited ability to accommodate different political and social preferences, and it creates a de facto laboratory within which experiments in governance can be assessed. Whether one approves of a particular experiment always depends upon the nature of the question, and experiments imposing limits on individual rights are unconstitutional. Individual rights established by the Constitution are thought to be inviolable and to supersede any federal or state legislation. We should all be absolutists about that. A federalist approach can also be a practical starting point in bringing about broader social recognition of new claims under the Constitution. There are many interesting cases, however, in which legitimate constitutional rights of different parties stand in conflict.

The federalist idea of a social laboratory across jurisdictions is very appealing. When a conflict over legal and social issues seems intractable, federalism makes it possible to see how well different approaches solve the problem. There may be a variety of interesting solutions or political compromises that can be brought to bear, and it can be easier to reach an accord at the state level. Diversity of circumstances and preferences may mean that a good solution in one state will be bad in another. So different states can try different arrangements under federalism. The results of these experiments can guide other states or even federal legislation, if it comes to that. Voters in each state have the power to reward or punish elected representatives, based on these experiments or their outcomes, or to “vote with their feet” by moving to a state that better matches their political preferences.

Today, the country is experiencing an epidemic of grievances on which there is little consensus. These cover issues related to gender identity, gay rights, polyandry, sexual consent, voting rights, due process claims, race and law enforcement, food labeling, drug legalization, censorship, assisted suicide, “micro-aggressions”, and any number of other causes célèbres. These issues may involve novel private or social arrangements, or they may necessitate a weighing of the asserted rights of an aggrieved individual or group against established rights of others protected by the Constitution. It may well be that the asserted rights of the aggrieved have a proper place in the Constitution, and if so, there might be a compelling case for protection relative to other claims. Federalism is one way this can be hashed out: a state legislates, pro or con; the legislation may be challenged in court; the courts rule whether the law is constitutional at the state level or even at the federal level. And the process may start in any number of states.

I have appealed to federalism on several issues in the past. When the rights of different parties stand in conflict, attempting to weigh different sides of an issue based on libertarian and constitutional principles does not always lead to clear-cut answers. However, laws work best when there is consensus among the governed. Political consensus may be more readily achieved at sub-national levels. That doesn’t necessarily protect the people of any state against big government solutions, high taxes or cronyism. However, at least dissenters within a state can register their dissatisfaction at the ballot box, agitate, attempt to persuade others, challenge in court, or move away.

Both left and right take absolutist views on many issues. They often find it difficult to tolerate variances à la federalism. For example, should a legitimate transgender individual be allowed to use the restroom compatible with their gender identity? The left regards that as an inviolable right, regardless of genitalia and potential threats to privacy. If you disagree, they may call you a bigot! Some on the right, however, regard transgenderism as perverse and not worthy of constitutional protection. Both are absolutist positions. There are, in fact, legitimate reasons for taking either side in the restroom debate, as I attempted to outline here last week. Under such circumstances, federalism respects the political balance within any jurisdiction and allows a way forward, short of resorting to federal legislation, which might well be impossible to achieve.

Federalism is usually associated with strong “states rights”, which are sometimes criticized on historical grounds because slavery was often characterized as a “states rights” issue. The horrific treatment of blacks under slavery was obviously based on an arbitrary distinction that should never have been tolerated under our Constitution; ownership of human chattel should never have been defended as a “right”, but it took a civil war and the Thirteenth Amendment to end it officially. The discrimination mandated under Jim Crow laws was based on the same arbitrary distinction, but it took another 100 years after the Civil War to end those laws through enactment of the Civil Rights Act. I grant that federal action was necessary in both cases. However, few of the challenges we face today are based on such arbitrary distinctions. Rather, they often involve constitutional ambiguity and legitimate concerns over protected rights. So let the experiments, the evolution of opinion and the court challenges play out. That is the essence of federalism. It helps us to muddle on through.

I’m a Restroom Federalist

10 Sunday Apr 2016

Posted by in Discrimination, Privacy

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A joke I once heard: “What two words does a guy least want to hear at the urinal? … Nice d*ck!”  The truth is that privacy matters. While most men don’t wish to be “admired” by other men, mens’ public restrooms would seem to provide adequate privacy for those having a particular sensitivity. I presume that womens’ restrooms do too.

Still, voyeurism is more common than we’d like, and strong privacy advocates believe that’s an adequate rationale for prohibiting transgender women (M to F) from using womens’ restrooms. It’s not legitimate trans-women who are of concern, whether they’ve undergone full sexual reassignment or not. Rather, it’s men who would falsely claim to be trans-women. Put another way, does the state have any compelling interest in protecting privacy by discriminating against transgender women, barring their use of womens’ restrooms?

Laws against voyeurism are grounded in the presumed right to privacy under the U.S. Constitution. The expectation of privacy is well-established as a condition under which voyeurism can be prosecuted, and bathrooms meet that test. In fact, the prevalence of voyeurism is estimated to be quite high, especially among males. The Wikipedia entry on this subject states that:

“…research found voyeurism to be the most common sexual law-breaking behavior in both clinical and general populations. … In a national study of Sweden it was found that 7.7% of the population (both men and women) had engaged in voyeurism at some point. It is also believed that voyeurism occurs up to 150 times more frequently than police reports indicate.“

The estimate from Sweden is conservative for male voyeurs. However, only a portion of that voyeurism occurs in or around public restrooms. For the sake of argument, let’s suppose that 5% of the estimate above relates to males likely to commit some form of voyeurism in or around womens’ restrooms, or 0.38% of the adult male population. Each of those males may commit voyeurism against multiple females on any given bathroom escapade, so this value may underestimate the risk to the privacy of women.

On the other hand, the prevalence of transgender, or gender identification different from that assigned at birth, is very low. Again according to Wikipedia, the most commonly cited figure is that 1 in 10,000 assigned males is transgender (and far fewer birth-assigned females). Some argue that this is too low to account for even the cases of sexual reassignment surgery (SRS) that have occurred in the U.S.  I would argue, however, that trans-women (M to F) having undergone SRS would be welcome in womens’ restrooms. After all, they’d even pass a genital check at the door! That leaves transgender men who have not yet, or will not, undergo SRS. So, for the sake of argument, I will go with the incidence rate of 0.01% implied by the figure above. That is, 0.01% of the adult male population is an assigned-male trans woman having male genitals.

Assuming that all womens’ restrooms are thrown open to any male claiming to be a trans-woman, the conservative estimate of the incidence of voyeurism would be 38 times the incidence of legitimate trans-women disallowed from entering womens’ restrooms under traditional gender restrictions. Note that neither of these estimates has a time dimension. Repeat voyeurism is a likelihood, just as legitimate trans-women, pre-SRS, would be denied their rights on every trip to a public restroom.

Now we ask again which case is more compelling: protecting the right to privacy against the potential for voyeurism, or protecting the restroom rights of trans-women who are pre- or non-SRS? One possible solution is to acknowledge restrictions on restroom use as an incentive for transsexuals to undergo SRS. However, that is not practical in important respects: full gender transition can take a number of years; SRS is not and cannot be an immediate procedure for walk-ins at the doctor’s office for various reasons; and some transsexuals are never able to make a full transition.

Another consideration is the extent to which bathroom regulation makes any difference at all. While “throwing the doors open” might create some additional incentive to male voyeurs, they are already active, and most of them would be just as easy to prosecute if the rules on restroom use for trans-women were relaxed. However, to the extent that creates additional risk, it is borne by all women availing themselves of public restrooms. At the same time, it is certain that trans-women already make use of womens’ restrooms. If non-SRS, they must do so surreptitiously and at some legal risk, Again, their total number is limited.

The balance between the threat to privacy rights and the desire for equitable treatment of transsexuals is not as clear-cut as some on either side would have us believe. However, given the need to determine that balance, the classic federalist approach seems ideal. That is, states or more limited political jurisdictions should decide how best to handle the issue. That is more or less our current approach, as the issue is otherwise beyond our ability to find a consensus. Full conversion to unisex restrooms might even be acceptable in some parts of the U.S. Fortunately, individuals can “vote with their feet”, rewarding those jurisdictions having laws they find best-protect their rights as individuals. It’s another great experiment in the determination of social preferences. That’s what federalism is all about.

 

 

 

Government Supplies a Cliff; Would you Jump?

14 Friday Aug 2015

Posted by in Big Government, Welfare State

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welfare cliff

People respond to incentives. That does not, in and of itself, make some people “energetic” and others “lazy”. To the contrary, it really means they are responsive and capable of calculating rewards. Critics of the welfare state are sometimes accused of labeling welfare recipients as “lazy”, which is absurd and a cop-out response to serious questions about the size, effectiveness, and even the fairness of means-tested benefits. The structure of welfare benefits in the U.S. often penalizes work effort and market earnings. That being the case, who can blame a recipient for minimizing work effort? From their perspective, that is what society wants them to do. Note that this has nothing to do with the provision of a social safety net for those who are unable to help themselves.

The welfare incentive phenomenon is explored by Zero Hedge under the Fight Club nom de guerre Tyler Durden in “When Work Is Punished: The Ongoing Tragedy Of America’s Welfare State“:

“At issue is the so-called “welfare cliff” beyond which families will literally become poorer the higher their wages, as the drop off in entitlements more than offsets the increase in earnings.“

The cliff looks different in different states and even differs by county. The chart at the top of this post is for Pennsylvania, from the state’s Secretary of Public Welfare, though I saw it on this post from LiberalForum. (Go to the link if the image is not clear). The Zero Hedge post linked above includes a dramatic illustration for Cook County in Illinois. Not many welfare recipients participate in all of the programs shown in the charts, but the point is that many of the programs create nasty incentives that tend to “trap” families at low income levels. Often, these workers and their families would be better off in the long-run if they were to suffer the consequences of the cliff in order to gain more work experience. Unfortunately, few have the resources to ride out a period of lower total income precipitated by the cliff. Another obvious implication is that increases in the minimum wage would actually harm some families by pushing them over the cliff.

Welfare cliffs differ by the recipients’ family structure (one- versus two-parent households, number of children) and do not apply to every welfare program. For example, the Earned Income Tax Credit (EITC) is very well-behaved in the sense that additional work and/or wage income flows through as a net gain the household. While most welfare programs involve a benefits cliff, incentives are undermined even before that point. A flattening in the level of total income as earned income rises indicates that the recipient faces an increasing marginal tax rate. The chart above shows that total income is relatively flat over a range of earned income below the income at which they’d encounter the cliff. This flat range starts at an earned income of $15,000 to $20,000 and extends up to the severe cliff at almost $30,000.

Zero Hedge quotes a report from the Illinois Policy Institute:

“We realize that this is a painful topic in a country in which the issue of welfare benefits and cutting (or not) the spending side of the fiscal cliff have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for Americans who find themselves facing a comparable dilemma: either remain on the left side of minimum US wage and rely on benefits, or move to the right side at far greater personal investment of work, and energy, and… have the same (or much lower) disposable income at the end of the day.“

Another interesting take on this issue is offered by Dan Mitchell, who cites a recent National Bureau of Economic Research (NBER) paper, which finds:

“…the decline in desire to work since the mid-90s lowered the unemployment rate by about 0.5 ppt and the participation rate by 1.75 ppt. This is a large effect…“

The findings suggest that the welfare reforms of the 1990s actually had positive effects on work effort, though even the EITC creates some incentive problems for second earners. Worst of all is the incentive impact of expanded disability benefits, which have undone some of the gains from reform. Newer programs like Mortgage Assistance and now, Obamacare, have added to the work disincentives. Mitchell cites other research that reinforce these conclusions.

The welfare cliff harms economic efficiency by distorting the offer price of labor, by increasing costs to taxpayers, and by reducing the availability of productive resources. It is grossly unfair because it consigns its intended beneficiaries to a life of dependency. What a waste! Here is Mitchell’s prescription:

“Regarding the broader issue of redistribution and dependency, I argue that federalism is the best approach, both because states will face competitive pressure to avoid excessively generous benefits and because states will learn from each other about the best ways to help the truly needy while minimizing the negative impact of handouts on incentives for productive behavior.“

A side effect of negative welfare incentives is that they increase the relative benefits of participating in illegal income-earning activity. The “War on Drugs” exacerbates this effect by driving up drug prices. Of course, this activity is untaxed, and because it is unreported, it does not push the recipient toward the benefits cliff. This is another example of different government policies working at cross purposes, which is all too common.

Federal Strings and Executive Puppeteers

28 Thursday May 2015

Posted by in Big Government, Federalism, Regulation

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We often think of government bureaucracy as a force of stasis, but it is unlikely to promote stability. At all levels, government administrative organs have a way of growing, absorbing increasing levels of resources and constricting private activity by imposing increasingly complex rules. A large administrative apparatus tends to calcify the economy, undermining growth or even a sustained level of economic activity. The negative consequences of the administrative state were treated twice on this blog last year.

Federalism, on the other hand, is usually viewed as a check on federal power relative to state governments. That was the perspective of “Nullifying the Federal Blob” last year on SCC. However, in “The Rise of Executive Federalism“, Michael S. Greve discusses forms of federalism that can serve as adjuncts or even alternatives to the exercise of federal legislative power. First, he discusses “cooperative federalism”, whereby lower levels of government receive federal funds and in turn administer federal programs:

“With very few exceptions…, virtually all federal domestic programs are administered by state and local governments, often under one of over 1,100 federal funding statutes (such as Medicaid or NCLB). Since its inception under the New Deal, this ‘cooperative’ federalism has proven stupendously successful in doing what it was supposed to do: expand government at all levels.“

Greve draws a connection between political and economic developments over recent decades, the coincident decline of cooperative federalism and the rise of a more aggressive “executive federalism”. These developments include constraints on funding at both the federal and state levels, a decline in the willingness of states to cooperate on certain programs, and a divided Congress. No funding, no federal-state cooperation and no federal legislative direction leaves a vacuum to be filled by federal executive initiative:

“Thus, to make federal programs ‘work’ under current conditions, agencies rewrite statutes, issue expansive waivers, and negotiate deals with individual states on a one-off basis. That is how the ACA is being ‘administered.’ That is how Secretary of Health and Human Services Sylvia Burwell is trying to expand Medicaid. That is how No Child Left Behind is run. And that is how Environmental Protection Agency is trying to impose its Clean Power Plan: ‘stakeholder meetings’ and assurances of regulatory forbearance for cooperating states; unveiled threats against holdout states. This brand of federalism knows neither statutory compliance nor even administrative regularity. It is executive federalism.“

It does not bode well that this perverse form of federalism “is robust to partisan politics.” Greve notes that certain aspects of executive federalism were initiated by the Reagan Administration.

Greve’s advice on combating this trend is to make federalism “less cooperative, one program at a time.” While he’s a little short on specifics, he advises that initiatives such as block grants to states are likely to be counterproductive in restoring traditional federalism. One point on which I part company with Greve is his disparaging reference to “state’s rights” as a battle of “yesterday”. I suspect his underlying objection (which I do not share) is drug legalization at the state level, or any other measure that he might find morally objectionable. Otherwise, I have no issue with what I take to be his favored approach, which seems to involve any assault on the exercise of federal administrative power and rule-making, whether that is through the courts or the exercise of nullification by the states. It is promising that so many states are resisting the imposition of additional administrative and funding burdens attendant to expansive federal sweeteners and control.