The Problem with American Federalism

Paul Krugman and many others have been talking about the “fifty little Hoovers” – state governments forced by balanced-budget rules to cut spending and raise taxes in the face of a recession, eliminating services when they are most needed and deepening the economic downturn. James Surowiecki (hat tip Matthew Yglesias) expands the attack by arguing that federalism (the idea that power is balanced between the national and state governments) in general is a problem, at least in these economic circumstances. In addition to counter-cyclical state fiscal policy, he cites political issues such as the disproportionate allocation of road spending to areas with few people and coordination problems such as the difficulty building national transportation or energy networks.

It may seem as if the balance is tilted heavily in favor of the national government – it has an army, it prints money, and so on – but the Constitution leans more toward protecting state autonomy (see the principle that the federal government is one of enumerated powers, and the Tenth Amendment), and the trend of the Reagan Revolution and the Rehnquist Court was to favor states’ rights. (Of course, “states’ rights” are not necessarily a Republican or a Democratic issue, but tend to be favored by whichever side finds the argument convenient at the moment.)

When I was young (like in high school) I thought states were silly and we should just have a national government, like in France, where the departments are mainly just administrative units. When I got a little older and became a qualified fan of Edmund Burke, I decided that the current system worked well enough most of the time that it would have to be seriously broken to justify a major structural change.

I’m not sure it qualifies as seriously broken at the moment, but I think the current recession counts as evidence that it sure isn’t the system you would design if you were starting from scratch.

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About James Kwak 133 Articles

James Kwak is a former McKinsey consultant, a co-founder of Guidewire Software, and currently a student at the Yale Law School. He is a co-founder of The Baseline Scenario.

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