Getting America out of Debt

Federalism: the First Key to Accountability

Would the state of Alaska have built the Bridge to Nowhere with its own tax dollars? Would Iowa enact an ethanol subsidy on its own?  How about the many other projects generally labeled “pork barrel spending?”

A few of the pork barrel projects would make it. Some are worthwhile projects. And a few of the not-so-worthwhile projects would also get funded. State and local government can do stupid things – just as any organization, public or private, can do stupid things. But there would be far less. Though governors and mayors may be spending other people’s money, those other people are voters in their districts. Elections provide some accountability.

When it comes to pork and earmarks, it’s use it or someone else gets it. Even Ron Paul, “Dr. No” succumbed to pork and earmarks to bring money back to his congressional district. To pass on pork is to ask for altruism on the part of your constituents – a poor vote-getter. Those who try it for the good of the nation often lose to the more corrupt. Thus many small government and good government legislators join the porkfest to keep worse legislators out of power. Our national legislature has degenerated into a thieves’ market.

It has so degenerated not because our legislators are inherently bad people. It has done so because they have no choice. The system is rigged. Halfway done federalism is a recipe for wasted money. For any government function, we should usually either we should go for all out centralization, or pass responsibility completely back to the states or localities.

The Challenge of Cost-Benefit Analysis

Cost-benefit analysis is hard. It is difficult for businesses. Marketers and engineers struggle with it daily, and don’t receive the answer until the product reaches the market. And even then the information they receive is incomplete. Generating supply-demand charts with real data is next to impossible. Conditions are ever changing on both the supply and demand side. On the supply side, the price of parts, and the expertise of assemblers is ever changing. On the demand side, consumer tastes and competition changes move faster than test markets can measure.

For government, cost-benefit analysis is even harder. Bureaucrats can take a crack at it using prior observational data. They might do so honestly, and still get it wrong. If the bureaucrats doing the study are working for the same department that’s going to do the implementation, the temptation to bias the study towards government action is enormous. People like keeping their jobs. The same temptation exists in the private sector as well, of course, and Mother Jones has documented plenty of egregious examples of corporations succumbing to the temptation to do biased “scientific” studies.

But for marketing studies, private sector businesses have a check on their biases: the actual market. For government, the only check is Election Day, and it is a pretty poor check for several reasons:

  1. Modern governments perform a great many services. Inefficiency in one particular service rarely affects an election.
  2. Special interest voters can be swayed by a particular program. More spending buys their votes even if the money is poorly spent from the perspective of the general welfare.
  3. Pork barrel money coming in to the incumbent’s district is seen as zero cost – or at least as a sunk cost.

Where market failure is dire, or economies of scale compelling, we might simply live with these inefficiencies and go for a government solution anyway. I am not making a case for anarchy here, merely a case for a balanced view of government vs. private solutions.

I am calling for making government solutions better. We can make the above problems a bit less bad through federalism done right. We can give government better feedback by clearly dividing tasks between different layers of government. If the federal government is going to spend money on buses, then the federal government should run the buses, with expert bureaucrats determining optimal conditions for buses. If the local government is going to have a bus line, then the local government should pay for the buses. The local politicians get clear cost/benefit feedback through the electoral process.

When the federal government pays for buses and the local governments run them, you can get cities with giant empty buses running around town. (This was the case for Dallas when I lived there.) This may be all fine and dandy when the federal government is oozing with extra money, but when the government is going broke, it’s time to spend money where it is actually needed.

If the local government foots the bill for the buses, the local government will think twice about buying buses bigger than needed. And when the local government does foot the bill for big buses, the local government is far more motivated to get people to actually ride the buses, be it through better routes, lower fares, more promotions, etc.

Clearly dividing tasks improves feedback two ways:

  1. Each layer of government covers fewer issues, allowing the voters to better evaluate performance of elected officials.
  2. The government which performs the task pays for the task. Cost and benefit are tied together at the ballot box. This eliminates the classic pork barrel paradox which leads even small government politicians to vote for earmarks.

To Return to True Federalism

Note that nowhere above have I invoked the Constitution or any natural rights based Proper Role of Government. You didn’t sign the Constitution, so why should you be beholden to its terms. As for natural rights arguments, while I like them I don’t claim to have broken the is/ought barrier.

No, the case for federalism should be remade for each generation. Whether you like lots of government services or minimal taxes, good government should be appealing. The Constitution is by no means perfect, but the idea of federalism has great merit. We may want to revisit which functions should be at the national level, and which should be state or local. Maybe the national government should be in charge of enforcing speed limits and localities should have their own nuclear stockpiles. (OK, I’m being a bit silly here, but dare to be creative. What did the Founders get right and where did they goof?) But whatever role division we decide, we should DECIDE. Having state, federal and local departments of education divides responsibility and gives us one of the worst lower education systems of the developed world. Both liberals and conservatives should find this distressing.

What’s this? I hear murmuring.  What about bad local governments? What about localities which cannot afford good schools or local police protection? These are excellent questions, worthy of another article. Despite its many advantages, the U.S. rejected pure federalism during the Progressive Era for some very good reasons. We shall look at those reasons and some alternative workarounds in Why Federalism Fails, and Four Ways to Fix It.

One Response to Federalism and Accountability

  1. Andrew Nicholson says:

    Hi, im a High School Senior and im writing a Government class Paper on the natioinal debt. it s about how we got the point where we are now, and how to fix it. i would really appreciate it if you could email some more citable information on what you’ve written on your web page.
    Thank you, Andrew.

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