Boettke, Munger, Leeson, Horwitz, Coyne, Sen, Ostrom, & others on James Buchanan

The latest issue of Journal of Economic Behavior and Organization is dedicated to James Buchanan’s work. Some of the most provocative pieces here include Kliemt on Buchanan as Kantian, Leeson on why clubs have self-enforcing constitutions and governments do not, and Voigt on how to test hypotheses drawn from constitutional economics. Especially recommended for those interested in the overlap between Austrian economics and public choice.

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Rate of Return on Bank Lobbying

This working paper is already getting substantial attention, and it’s not hard to see why. They find that banks that lobbied more in the years leading up to the Troubled Asset Relief Program (TARP) of 2008 received more money through TARP. What’s particularly astounding is the rate of return, which they estimate at between $485 and $585 per dollar spent in lobbying.

I suppose there are two ways to look at this. One is to become outraged at the profitability of lobbying and the fact that money buys influence in Washington — but who is really surprised by that? The other way to look at it is that despite the flood of rents available, rent-seeking seems to be far less than theory would predict. Theory predicts that banks should spend up to about 1/2 the amount they could reasonably expect to receive, and that total expenditures on rent-seeking could even be greater than the rents available. Perhaps the reason standard rent-seeking models don’t apply in this case is that a program the size of TARP was unforeseeable until just days before it happened.

In any event, the findings certainly betray the common assertion from political leadership that the program was simply a practical response to the financial crisis aimed at preventing another Great Depression.

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Starving the Courts

In the latest issue, The Economist gives a startling look on the dire situation of courts in America. Budget cuts and, at the federal level, political obstruction have fostered delays and case backlogs. Some of the dire consequences:

• In California, uncontested divorces now take a year to obtain.
• One circuit court in Georgia has stopped civil adjudication (traffic offenses, etc.) altogether.
• Courts in 14 states are closed on some work days.
• One municipal court in Ohio stopped accepting new cases because it could not afford to buy paper.
• New York judges’ pay has been frozen for a dozen years, even as their caseload has increased by 30%.
• In Florida in 2009, according to the Washington Economics Group, the backlog in civil courts is costing the state some $9.8 billion in GDP a year.

And so on.

As a libertarian, I believe that the judicial function is a core function of government, and that government should fund it properly and do adjudication well. Judges should be highly paid and courthouses well staffed and efficiently run. Private arbitration is all well and good, but arbitration contracts ultimately depend on enforcement by the public courts. States should be increasing, not cutting, judicial budgets, even if they have to raise taxes or cut more severely other programs in order to do so.

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Voter Support for Limiting Voting’s Reach

John Sides has a short but interesting post on 538 today looking at surprisingly strong public support for technocratic limitations on pure democracy. A few months ago I floated the idea of multiple voting as a way of overcoming, partially, the baleful effects of voter irrationality. Technocratic management would be another way to do it. These sorts of proposals seem to be unexpectedly popular. Voters generally don’t think highly of other voters’ intelligence.

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Political Scientists and Democracy

Since Jason brought up the topic of representation, some readers might enjoy James Caeaser’s take on the role of democracy in the American Political Science Association.

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Do We Want Everyone Represented Equally?

Political scientist John Sides has contributed an interesting guest post to FiveThirtyEight, in which he reviews the evidence that social class influences the way Congresspeople vote. In particular, Congresspeople are unlikely to come from working-class backgrounds, and class seems to affect voting at the individual level. If Congress had the same mix of class backgrounds as the general American public, they would in general be slightly more liberal.

My first reaction was: I wonder how much of this reflects IQ. Intelligence makes people think like economists and also increases people’s income and probably shifts class background toward mentally intensive occupations.

My second reaction was: Assuming the result stands, do we want Congress to reflect the same background as the American public? Should everyone be represented equally? It’s not obvious to me that they ought to. I’m on record here as supporting limiting in some way the right of government employees and contractors to vote. Even if you don’t share my libertarian proclivities on public policy, however, a slightly upper-class-tilted public policy regime might be desirable for straightforward reasons of stability. In a pure democracy that is strictly responsive to the median voter, businesspeople and professionals might become alienated from democracy itself. That may sound like a bit of a stretch for the United States, but not for many countries around the world where upper-class opposition to democracy has entrenched electoral fraud, clientelism, or military supervision of civilian authority.

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Land-Use Regulation and Growth

I want to piggy-back here on Mark’s great post on urban planning and the poor. I’ve been playing around with some state-level data on local land-use regulations and cost of living. The last decade in the U.S. has been one of very slow productivity growth. As a result, fast-growing states tend to be those with low growth in cost of living. This explains not just states like Texas but North Dakota as well (and at the other end, California). Take a look at the list of states with highest annualized real personal income growth over 2000 to 2007 (the deflator, a state cost of living index, comes from the newest, 2009 Berry et al. data, which explains why the series ends at 2007):

1. Louisiana – 2.8%
2. Wyoming – 2.8%
3. North Dakota – 2.6%
4. South Dakota – 2.1%
5. Oklahoma – 1.9%
6. Arkansas – 1.8%
7. Mississippi – 1.5%
8. Nebraska – 1.5%
9. Montana – 1.5%
10. Kansas – 1.4%

Surprised? These are hardly “knowledge economies.” In some cases, mining or energy accounts for strong growth, and indeed in multiple regression mining share of GDP in 2000 does strongly explain subsequent real personal income growth (per capita or total). And in Louisiana’s case Hurricane Katrina chased away a lot of low-income people. But part of the story is elastic housing supply leading to low growth in house prices during the 2000-2007 bubble. A better measure of state economic success is arguably total rather than per capita income growth, which rewards states that attract people. Here are those numbers:

1. Wyoming – 3.6%
2. Nevada – 3.1%
3. Florida – 3.0%
4. South Dakota – 2.8%
5. Arizona – 2.8%
6. Arkansas – 2.6%
7. Texas – 2.6%
8. North Dakota – 2.6%
9. Oklahoma – 2.5%
10. Louisiana – 2.5%

Again, these states have in common slow growth in housing prices during the bubble. And what explains slow growth in housing prices? Land-use regulation. I use the Gyourko et al. land-use regulation variable to predict both cost of living in 2000 and growth in cost of living over 2000-2007. It is an extremely strong predictor of both (statistical significance>99.99%). When net 2000-2007 in-migration (% of 2000 population) is regressed on both 2000 cost of living and the land-use regulation index along with controls (economic and personal freedom, 2000 accommodations GDP per capita), both are highly statistically significant and negative. When total personal income growth is regressed on migration, controls, and the land-use regulation index, land-use regulation is insignificant while migration is highly significant and positive. No surprise there – land-use regulation doesn’t reduce total factor productivity, but it does discourage labor inflows.

So here’s the big story of growth in those states that have experienced it in the last decade: lack of land-use regulation –> slow growth in cost of living –> more in-migration –> more income growth. Highly regulated states like California (-0.4% annual growth), Oregon (0.1%), Massachusetts (0.1%), and New Jersey (0.3%) could learn something. If we are entering a “great stagnation,” we may have to squeeze increases in living standards out of lower prices rather than innovation for a while.

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Florida’s Drug Testing Law Not Working Out So Well

Florida recently passed a law requiring welfare recipients to be tested for drugs and throwing them off welfare if they test positive. Governor Rick Scott justified it as saving taxpayers’ money and discouraging drug use. It turns out to be costing taxpayers more money than it saves them, because hardly anyone tests positive. This isn’t conclusive proof, by the way, that the law isn’t discouraging drug use – after all, prospective welfare recipients could have modified their behavior after the law was passed – but it’s strongly suggestive that it is not, for low-resource citizens tend to have higher levels of political ignorance, and it would not be surprising if many of them did not know of the new law before applying.

Even if the law were working as intended, I think it would still be unjust. As Mike Riggs points out in the first link above, the law does not test corporate welfare recipients for drugs, only poor people. The fact that this is a government benefit does not mean that the government is justified in attaching any conditions it wants to it. Would it be justified in requiring every public school student (and parent??) to be tested for drugs? Would it be justified in requiring strip searches of welfare recipients? Drug testing is invasive and should always bear a significant burden of proof when conducted by government. In my view, while private employers have every right to test their employees for drugs, the bureaucratic, “zero tolerance” culture of drug testing has gone too far and should not be further encouraged.

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Interposition: Part Nine: The Hartford Convention

Few in power find it convenient to notice inconsistencies in their own conduct. Alas, but President Madison was no exception. Federalism and decentralization exist precisely because free constitutions should not depend on the good graces of those in office, but on the checks necessary to harry them back under the law.

Seeking the financial means to carry on his war, Madison did not appreciate New England’s opposition to his measures or her refusal to lend. As the enemy bore down from the north at various points along the Canadian border, Madison attempted to impose conditions on the New England militias, not trusting them, as he did the other states, to staff and command their own forces.

In these efforts, the fourth president was roundly rebuffed by the governors and legislatures of Massachusetts, Rhode Island and Connecticut. They correctly pointed out that the Constitution reserved to each state the right of officering her state militias: The president could certainly call those units into service according to the constitutional powers that authorized Congress to declare war, but he could not reorganize those units without a state’s permission. Unable to get his way, Madison refused to mobilize New England’s forces and subsequently refused to pay any expenses for her defense.

Governor Caleb Strong of Massachusetts organized and raised his own force of some 10,000 men at a cost of 1 million dollars, which was a considerable sum in that day. Facing such staggering costs and outraged by what they considered to be the unconstitutional and dangerous manner in which their region had been treated, the New England states elected to protest in the same spirit as they had done against the embargo, but this time they went a step further: Coordinated state action.

Under the inspiration of Harrison Gray Otis and Theodore Dwight (the brother of Timothy Dwight of Yale), Connecticut, Rhode Island, Massachusetts, and several counties of New Hampshire and Vermont sent representatives to meet in Hartford Connecticut between December 15, 1814 and January 4, 1815. There they formed a list of grievances and a call for constitutional amendments, concluding with a threat to organize another convention should these proposals not be taken up by the other states in the Union.

The men who attended this gathering tried to moderate the more extreme elements calling for secession and outright resistance to the national government (see Justin Winsor, Narrative and Critical History of America, vol. VII, Houghton Mifflin, 1888, p. 321 and notes) but the prospect of a convention sent shivers through the administration. It is not difficult to see why.

In “A Short Account of the Hartford Convention to which is Added an Attested Copy of the Secret Journal of that Body” (1823), Theodore Lyman, noted that Massachusetts was quite open about her aims, and “the sense of her citizens was at that time well known, and in relation to the Hartford Convention, she adopted without delay that course of conduct, of which an eminent example had been given less than half a century before, and which, in this juncture of affairs, was especially judicious, from the vast magnitude of the subject and occasion.” (p.8) That example was Madison’s own call at the end of the Annapolis Convention for the convention that followed in Philadelphia, which of course ultimately put an end to the Articles of Confederation.

When the Hartford Convention got down to business on its second day, it considered, according to the Attested Copy of the Secret Journal, the two constitutional grounds of New England’s grievances just mentioned: “The [unconstitutional] powers claimed by the executive of the United States, to determine, conclusively, in respect to calling out the militia of the States into the service of the United States; and the dividing the United States into military districts with an officer of the army in each thereof, with discretionary authority from the executive of the United States, to call for the militia to be under the command of such officer.”

The second grievance followed immediately after: “The refusal of the executive of the United States to supply, or pay the militia of certain States…on the grounds of their not having been called out under the authority of the United States, or not having been…put under the command of the commander over the military district.” These two grievances then formed the basis of the final and more damning constitutional conclusion that the national government had failed to meet its obligation as stated in the preamble “to provide for the common defense.”

In their protest the members stood on solid textual grounds. It was true that Section Eight of the First Article gave Congress the power “To provide for organizing, arming, and disciplining, the Militia, and for governing such part of them as may be employed in the Service of the United States,” but it specifically reserved “to the states respectively the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress.”

Did this “prescribed” discipline give Madison the right to reorganize the New England militias? It might have, but only if Congress had specifically formed such a policy, and had done so equally for all parts of the Union. The fact that President Madison asserted this as a matter of executive authority, and the fact that he applied that policy unequally to some of the states and not to all of them, violated both the spirit and the letter of the fundamental law. With these arguments before them, the delegates proposed their Constitutional remedies.

They called for consideration on the part of the states for amendments that would permit the state legislatures “some arrangement whereby the States may be enable[d] to retain a portion of the taxes levied by Congress, for purposes of self defence (sic), and for reimbursement of expenses already incurred, on account of the United States.” They then proceeded to request further consideration be given to certain other constitutional issues: To restrict Congress’ power to declare war; to restrain its power “to make new States, and admit them into this Union; to limit Congress’ power to impose embargoes and restrict commerce; to prohibit a president from the same state serving two consecutive terms; and finally, and perhaps most ominously of all, to eliminate the 3/5ths provisions of the Constitution “respecting slave representation, and slave taxation.”

This last provision underscored a growing cultural and political divide already evident between the northern and southern states. New Englanders had always felt aggrieved to some degree by the so-called 3/5ths compromises in the Philadelphia Convention. Already by this time, they saw it as a principal driver of western expansion, and the Southern states made little bones about their desire to move the peculiar institution westward, and to form an alliance with that region in opposition to New England.

Thus the Hartford delegates sought restrictions on admitting new states as well as the elimination of the South’s use of slaves in calculating her population numbers. It is interesting to note that at this point in time, the South’s rising star, J. C. Calhoun of South Carolina, was a strong nationalist defender of the War of 1812 and a proponent of a new national bank so that the general government could more easily finance such military ventures in the future. The irony of ironies is that this situation was about to change yet again.

As reported by Theodore Dwight, the Secretary of the Hartford Convention, in his later history of that meeting, the timing of the delegates’ report to Washington could not have been worse. It arrived just as news from England of the War’s end came along with the report of Andrew Jackson’s victory in New Orleans. While the war had not gone so well for America in general, the popular sense created by this juncture produced a patriotic fervor that was ill disposed to consider of the resolves of the Hartford delegates.

The commission attempted to quietly retire back to New England, but the popular reaction, especially among Madison’s Republican Party was to revile its proceedings as radical secessionism, and the reputation of that convention has labored under such a misapprehension ever since.

Far from secessionism, however, the Hartford Convention presented yet another means of interposition through coordinated state action, and to the degree that such coordination gathered more sustained attention (even if in the negative) from the other states, to that degree it succeeded. With the war’s end, Hartford’s issues became moot, but one could easily imagine what might have developed had the exigencies of war persisted.

The next stage of development in the ideas of interposition, however, would raise the stake higher, actually attempting what Jefferson had contemplated in the Kentucky Resolves: Nullification. Interestingly, the author of this approach was our leading nationalist of the 1810s. Calhoun had been a student of Theodore Dwight’s brother about a decade earlier at Yale. Timothy Dwight shared his brothers’ attachment to the reserved rights and powers of the states. Calhoun had resisted such thinking as his student, but when the issue of tariffs touched his own state’s interests in the next decade, he began to avail himself of Dwight’s understanding, coming to a deeper appreciation of the need to constitutionally restrain centralized power, but he did so with an interesting and novel twist that would have a profound impact on the popular perception of state’s rights.

And Calhoun’s solution would prove perhaps the most difficult and cumbersome of all…

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Texas Job Numbers and Inter-State Migration

Political Math’s piece on Texas’ amazing job growth has been getting a lot of attention around the ‘Net. As regular Pileus readers know and as Political Math’s piece confirms, job growth is largely a consequence of population growth, and population growth is largely a consequence of warm climate, low cost of living, low taxes, and high personal freedoms. Since Texas enjoys all four of those characteristics in spades (personal freedoms maybe a little less so), it is unsurprising that Texas has grown so much. To what extent can Rick Perry claim credit for that job growth? I think he can claim a bit of credit to the extent that he can point to a record in which he has supported policies that have kept cost of living and taxes low and personal freedoms fairly high.

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Stability, Peace, and Poverty

The last issue of The Economist has a feature on “middle-income fragile and failed states” (MIFFs). It compares the World Bank list of countries by development level (high, middle, and low) to the OECD list of “fragile and failed states,” finding that fragile and failed states are by no means exclusively low-income:

[S]ome 15 of the 56 countries on the bank’s lower-middle income list (ie, over a quarter) also appear on the list of fragile and failed states. . . They range from Côte d’Ivoire to Yemen; the most important of them are Pakistan and Nigeria. State failure, it appears, does not necessarily go hand in hand with other human woes, such as poverty.

The article then bemoans the fact that because of their lack of absolute destitution, MIFFs often do not qualify for as much foreign aid. The unstated premise, of course, is that more foreign aid would do them good – but where is the evidence for such a claim? The article notes that the list of fragile and failed states includes both countries in “total collapse (Somalia, Chad) and those which merely contain large ungoverned spaces.”

Should governments and international institutions be aiming at making these fragile states stronger? The Economist assumes so. But might the phenomenon of middle-income fragile states instead tell us something about the comparative irrelevance of state strength, as such, for bringing people out of poverty? Admittedly, the list of MIFFs includes some countries that are non-poor purely by virtue of large mineral deposits (Nigeria, Equatorial Guinea), and these countries often feature yawning income gaps between the rent-seeking rich and the powerless destitute. But when it comes to MIFFs like Cameroon, Djibouti, Kiribati, Pakistan, Papua New Guinea, and Solomon Islands – would they really be better off if their states were more empowered? Or have the “large ungoverned spaces” served them well? As Ben Powell and Peter Leeson stress in their work on Somalia, the only way to answer those questions is by considering the alternatives that are realistically available. Liberal constitutionalism is not coming to Pakistan. So the real question is – do we want Pakistan to have a dysfunctional, powerful state or a dysfunctional, weak one? It’s not an easy question to answer, and I wish complacent journalists and aid agencies would acknowledge that.

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Do Politicians Regulate When They Can’t Spend?

Noel Johnson, Matt Mitchell, and Steve Yamarik have a new working paper answering that question in the affirmative. They look at state fiscal and regulatory policies and find that Democrats generally like to increase taxes and spending when in control of state houses and Republicans do the reverse. But when states have tough balanced-budget requirements called “no-carry rules,” Democrats and Republicans don’t differ much on fiscal policy. Instead they try to appeal to their constituencies by pursuing regulatory policies – in general, Democrats increasing regulation and Republicans cutting it. As the paper’s still in the working draft stage, they are looking for comments on it.

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Liberty as Amenity: Freedom, Migration, and Growth

Is liberty an “amenity” that people find attractive? We know that people do not necessarily tend to vote for liberty, in part because they are politically ignorant or even irrational, but when it comes to where they choose to live, people can be expected to pay close attention to how the laws in different places affect their quality of life. Economists model migration rates across jurisdictions as a function of economic opportunities (real income differentials) and “amenities” (example). Thus, it is standard practice in the literature to use inter-state migration rates in the U.S. (adjusted for the component predicted by economic growth) as a proxy for the desirability of different states as places to live. The question I address here is whether liberty is an amenity; in other words, do states with more freedoms attract more people?*

My study with William Ruger, Freedom in the 50 States, addressed this issue briefly. We find that both economic and personal freedom are associated with net inter-state migration over the 2000-2009 period. In other words, freer states attract people from less free states. The relationship holds when we control for climate, measured as average January temperature in a state’s largest city. We also find that real personal income growth (total, not per capita) over 2000-2007 is positively associated with economic but not personal freedom. Thus, it remains an open question whether economic freedom attracts people because people find it desirable for its own sake, or whether it attracts people by promoting economic growth. However, it does appear that people are attracted to personal freedom for its own sake.

This blog post offers a first look at a much more sophisticated analysis of the issue, bringing in more control variables and more advanced, appropriate estimation methods.

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Why Do More Conservative States Take More Federal Grants?

Why do “red” states that tend to vote Republican in presidential elections take more federal money than do Democratic-leaning, “blue” states? This surprising correlation between ideology and federal dependence has been often noted (see for instance here, here, and here). Indeed, this fact seems to be trotted out whenever we hear “what’s the matter with Kansas/Connecticut” arguments from the left/right, respectively. Are conservative states hypocritical and liberal states self-abnegating, or is there some deeper explanation?

First, let’s take a look at that correlation. In the chart below, I’ve plotted each state with federal grants to state and local governments in that state, as a percentage of personal income, for fiscal year 2007-8, on the Y axis, and percentage of the vote for Obama, McKinney, and Nader in the 2008 election on the X axis. The line through the points represents the least-squares line of best fit. As you can see, there does indeed appear to be a negative relationship between liberal ideology and acceptance of federal grants.

Is the correlation statistically significant? To see this, I

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Multiple Voting in Elections, Part 2

I recently ran a poll here to gauge support for the idea of giving voters with bachelor’s and/or doctoral degrees extra votes in elections. I ran the same poll on a non-political site to get an idea of support from the general public. Surprisingly, Pileus readers opposed the reform overwhelmingly, 82-18%, while respondents on the other site were slightly more supportive, with opposition running at 74-26% (31 respondents). In both polls I simply asked the question and did not offer any reasons for either side of the issue. The sample sizes are too small to draw terribly confident conclusions about the general public’s support for this proposal, but support does seem surprisingly high given that no Western democracy since the 1940s has given multiple votes to college graduates (Belgium and the United Kingdom formerly did so).

The impetus for the poll came from a discussion I had with Bryan Caplan, author of The Myth of the Rational Voter. Caplan finds that voters have strikingly different views from economists on many economic issues. The general public tends to suffer from anti-market, anti-foreign, and pessimistic biases. However, the more educated you are, the more likely you are to think like an economist (the smaller your biases on economic issues). In subsequent research, Caplan says that the effect is really one of IQ: smarter people are more likely to think like economists, and smarter people are also likely to get more education. Nevertheless, the logic implies that giving people with more education more votes will lead to better politicians and better economic policies. I argued that giving additional votes to more educated voters might actually be a popular change in the long run, if it were actually proposed and defended at length. Bryan thought that it would be overwhelmingly unpopular and essentially not worth proposing.

The precise implications of these poll results are up for debate, but it seems to me that support for some reform of this kind actually does have some base of support in the public, even when no logical or evidentiary support for the change is offered.

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Interposition: Part Eight: Federalism, Finance and The War of 1812

When tensions with England finally began to degenerate into violent altercations, first on the western frontier in such places as Tippecanoe and later along the Great Lakes, the Madison administration decided the time had come to vindicate America’s claims of offended sovereignty. Unsurprisingly, these claims also happened to coincide with popular desires to expand into the Old Northwest and Canada. Those particular voices were especially powerful in the mid Atlantic and southern states. Two of the leading voices of those regions, Henry Clay and J.C. Calhoun were united at this point in their careers, generally supporting more vigorous forms of nationalism at home and abroad.

But Mr. Madison had let the charter of the first Bank of the United States expire in 1811, and when he turned to finance his war he had of necessity to turn to state banking institutions. These entities were comprised of various private and state banks who were generally quite willing to buy American treasury securities. There was one region, however, that was not quite so willing: the New England states and the banks that operated under their approval.

Already rocked by years of embargo, New Englanders were poised to suffer even more outrages in open war. Popular sentiment ran high against the conflict, and when the treasury presented its notes for sale to New England banks they received a cool reception. The vast majority of such paper was consequently sold to the south and west. Indeed, needing to purchase supplies in the north, the national government found this a particularly galling impediment. To remedy the situation, Madison’s administration not only borrowed from existing banks in the mid-Atlantic states, it actively promoted new ones, even over the existing laws of those states that had tended to restrict private unchartered banks.

From 1811 to 1815 the number of banks more than doubled, from 117 to 247, 35 of which were unincorporated. The result was a massive increase in circulating paper money–nearly three times the amount in circulation at the start of the war. Treasury certificates were used as, and encouraged to be considered backing for notes in the same fashion as gold or silver. But one difficulty was not anticipated. When the District of Columbia was burned by British marines on August 24, 1814, it quickly became apparent that certificates on the U.S. government might not be such a sound investment.

Runs the banks that very month demonstrated the insolvency of most of the new institutions, and in opposition to various state laws, the national government encouraged the mid-Atlantic and southern states to ignore or restrict bankruptcy proceedings against their offending banks, but allowed those very institutions to pursue such proceedings against their own debtors. All this was done, no less, while they continued to make new loans, adding yet even more to the already general inflation.

Only one region did not experience suspension of payments or bank runs: New England. For once in over six years, the New England states could boast a small economic indicator in their favor. In Federalist 10, Madison had argued that federalism might serve to insulate local evils from becoming universal, national ones. In this case, the evils of expansionism had been halted at the gates of Massachusetts, and New England’s representatives left little doubt about their sentiments in this regard.

In words that would later come back to him, a young Daniel Webster, then a representative of New Hampshire, declared in Congress on December 9, 1814, that the “operation of measures unconstitutional and illegal ought to be prevented by a resort to other measures which are both constitutional and legal. It will be the solemn duty of the State Governments to protect their own authority over their own militia, and to interpose between their citizens and arbitrary power. These are among the objects for which the State Governments exist, and their highest obligations bind them to the preservation of their own rights and the liberties of their people.”

Would it be too much to suspect that Webster both knew and approved of the New York statement of ratification? But even if he hadn’t, and that seems dubious, the words demonstrate just how deeply the sense of the states as checks to central power was engrained in the American mind. At this point in time, Webster was no Jeffersonian. He was a New England Federalist, and the home states were listening. On to Hartford.

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Multiple Voting in Elections

At a recent Institute for Humane Studies conference, I had a bit of a debate with Bryan Caplan about the potential popularity of this proposal. In conjunction with this poll, which admittedly suffers from serious self-selection bias, I have another poll running on a non-political site. We’ll check back in a few days and see what the results show.

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State Policy Ideology in 2 Dimensions

As many readers already know, the Mercatus Center at George Mason University just released a new study I’ve coauthored with Texas State political scientist William Ruger, Freedom in the 50 States 2011: An Index of Personal and Economic Freedom. It’s the second edition of a study first published in 2009. The new edition updates and expands the data, ranks the states, and examines some correlates of economic and personal freedom.

I’ll try to blog a few of the findings from the study here in the near future, but in this post I wanted to explore something more in the vein of traditional academic political science, using the same data. (The data for the study, and to which I refer here, are available to the public at statepolicyindex.com.) When we try to understand how states differ systematically from each other in the mixes of public policies they have chosen, we have at our disposal a statistical method known as factor analysis. Factor analysis allows us to extract from a large number of variables a small number of dimensions – new variables that express meaningful correlation across policies. For instance, if states that have strict gun control laws also tend to have high cigarette taxes and lax abortion laws (which is true by the way), factor analysis could tell us that because of the high correlations across these three variables, a single variable can explain much of the variance in all three policies.

The dimensions that emerge from factor analysis of state policies are referred to as “state policy ideology.” We could think of them as regime orientations, ways in which different state governments have typically approached a wide range of public policies. The most important dimension of policy ideology is, unsurprisingly, the liberal-conservative, left-right dimension. Policy-liberal states tend to have, for instance,

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More Evidence for Greek Default

The Economist has a chart up today comparing growth rates pre- and post-default in recent years. Interestingly, countries have typically grown faster after default than before. There are reasons to be skeptical of a causal relationship, but it still shows that default is no disaster.

Scholarly work by John Ahlquist also has shown that default tends to attract more rather than less private investment. I have found a similar relationship in the data I have worked with.

More reasons to think that the catastrophic scenarios entertained to get European taxpayers to go along with bailouts are just not realistic.

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Freedom in the 50 States

I’ve just gotten back from a Cato Institute event discussing the new study, Freedom in the 50 States, with my coauthor William Ruger, John Samples, and Michael Barone. I’ll post the video when it’s available. The Mercatus site for the study allows you to download the study and to use a calculator to see how states would change on the index if they made certain policy reforms. They’ve also put together this nice little video for the project:

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Interposition: Part Seven: The Embargo and Noncooperation

With the war in Europe between France and England intensifying, Americans found their rights as neutral traders regularly violated by both French and British navies, and French and British port restrictions further limited American opportunities for commerce. To make matters worse, on numerous occasions, English vessels had boarded American ships and “impressed” many of their crews into service as if they were British subjects. Such disregard for American sovereignty and rights was taken hard by the public, but America’s naval capacities were far from adequate to enforce a due respect on the high seas. Yet doing nothing was not a popular option.

President Jefferson attempted to draw a lesson from our colonial past and impose an embargo of American trade. The hope was that such an embargo would inconvenience European commerce to such a degree as to bring the powers, especially Britain, to that level of respect which American arms were insufficient to obtain. In 1807, the Embargo Act was imposed, interdicting all vessels from entering or exiting American ports. Trade was the life blood of New England, however, and the Embargo hit them especially hard. As weeks moved to months and months to a year, the suffering in the port cities became nearly unbearable. Numerous calls for lifting the interdiction were heard, but none of the offending powers seemed even remotely ready to bargain. Unwilling to surrender the point of honor or to risk outright war, Jefferson’s administration remained steadfast in its policy.

At a certain point, the states began to question not only the efficacy of the measure, but its justice. Should not the risks of trade be borne by the traders themselves? Why a general restriction? If families and communities are ruined, is this not an indication of a policy gone too far? Indeed, so far that it might conflict with a vital principle of constitutional government? The national authority was to engage in defensive action in support of the states and their communities, not in their strangulation. If it could not live up to its military obligations, this was no excuse for an imposition of a total ban on trade, a power not contemplated in the original design.

In the earliest resolutions of Massachusetts, Connecticut, and Rhode Island the hue and cry was again heard. Massachusetts’ legislature, as Thomas Woods noted in his collection of sources, sought only formal political means, and counseled patience on the part of its citizenry as it pursued these avenues of redress. Rhode Island observed that it was “the duty of this general Assembly, while cautious not to infringe upon the constitution and delegated powers and rights of the General Government, to be vigilant in guarding from usurpation and violation, those powers and rights which the good people of this state have expressly reserved to themselves…” Here were the states as Sentinels calling out their warning.

But Connecticut, first through its governor and then its legislature went further still, openly and officially “declining to designate persons to carry into effect, by the aid of military power, the act of the United States, enforcing the Embargo.” And “that the persons holding executive offices under this state, are restrained by the duties which they owe this State, from affording any official aid or cooperation in the execution of the act aforesaid.”

This action went the further step of embracing the idea of non-cooperation, and its precedent went back to colonial legislatures that had refused to cooperate with the enforcement of the Imperial Stamp Act. No force would be applied directly to interdicting federal officials, but no cooperation would be accorded them either. They could do their work on their own, but in the absence of active assistance or support from state institutions, they would find that task far more difficult. No power of the federal government could compel action on the part of the states in this regard.

And here New England’s civil society operated in yet a further way to exert force against the centralized exercise of power, again, much like what had happened in earlier colonial protests. While not directly engaged in administering smuggling, the governments of New England gave tacit affirmation of private actions through their resolutions. New England’s merchants were long practiced in the arts of running goods around imperial restrictions. Now they would do the same with respect to national ones. And the general government found its resources stretched to the breaking point.

Remarkably, Jefferson himself later reflected on this opposition of local authorities. He recalled this episode as a powerful illustration of why local governance is so critically important to the maintenance of a free society! No longer president, he could reflect with some approval on the nature of the opposition he had then faced.

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What Caused Recent Tax Increases at the State Level?

The recent recession cut deeply into state treasuries, forcing legislatures to raise taxes or cut spending or both to eliminate budget deficits. It is interesting to note which states opted for big tax hikes over big spending cuts. USNews Money blogger Rick Newman has compiled a list of the 10 states with the largest enacted and “proposed” tax increases per capita over the 2009-2011 years, based on figures from the Association of State Budget Officers.

Almost all the states on the list either had unified Democratic control for most of the period of analysis (New York, Delaware, Connecticut, Wisconsin, Washington, Oregon, Massachusetts, New Hampshire) or are ideologically liberal (Connecticut, California). Arizona is one of two exceptions; they had a particularly large real estate bust. Kansas I can’t explain – but they only show up because of “proposed” increases. I will go out on a limb and predict that most of those increases will never be enacted.

By the way, the two-thirds requirement for raising taxes in California, which effectively gives veto power to moderate Republicans, does not seem to have had the ill consequences attributed to it – California is #2 on the list.

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Socialism in One State

Vermont has passed a law authorizing a single-payer, government-run health insurance system. Apparently the plan fails to grasp the fiscal nettle and thus may never come to fruition. Nevertheless, I hope they go forward with it. I don’t think it will work – to the contrary, the experiment should serve as an object lesson to the rest of the country. But we are only going to get a ceasefire on health insurance at the federal level if PPACA can be repealed and the left comes to realize that they can try out their cockamamie schemes at the state level, so why not let those crazy libertarians do the same?

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Bailouts and the Optimal Size of States

Risk-pooling in an era of frequent financial crisis is not as good an argument against Scottish independence as Tyler Cowen thinks it is. First off, bailing out is a policy choice to which there are alternatives. Second, financial governance matters. Who had a worse financial crisis in 2008: the United States (population 300 million) or Canada (population 35 million)? Which set of countries suffered more in the 1997 East Asian financial crisis: South Korea, Thailand, and Indonesia or Singapore, Hong Kong, and Taiwan?

Finally, the European Central Bank and leading European Union member states have shown that they are more than willing to pool risk with weaker members. The SNP favors joining the Eurozone in the event of Scottish independence. Even if the optimal size of nations has gone up with the increased risk of financial crisis, that does not mean that Scotland falls below the optimal size.

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Interposition:Part Five: Assuming Powers from National Bank to Seditious Libel

Not long after the ratification of the Constitution, Madison came to have serious doubts about his former Federalist friends. Particularly, he came to suspect the sincerity of many who had asserted that the new government would possess only those powers specifically delegated to it.

The first disappointment came with Hamilton’s championing of the incorporation of the Bank of the United States in 1791. It sparked the formation of the first party system: Federalists who supported the bank versus Republicans (not the modern party by that name) who opposed it. Madison felt especially sensitive to this issue. He remembered that the power of incorporation had come up at the Philadelphia convention. Indeed, he remembered it so well because he had been the one to move for its approval. He also recalled that it had been roundly voted down.

To Madison’s thinking, the power to incorporate was a very particular and peculiar power. At the time he had proposed its inclusion in the Constitution, he was certain it could serve important national purposes, but having been voted down, he was just as certain that no such power had been given to the general government.

Hamilton took a different view. The bank, he argued, would be of such significant utility to the collection of taxes, the paying of obligations, the administration of finance, both public and private, and of the regulation of commerce and the value of coinage, that it achieved the level of an implied power. Its necessity was established by its usefulness, and as such, it was constitutional.

To Madison that way of thinking amounted to no limits at all. By such an assumption, anything deemed useful could be done by the federal government regardless of whether or not it had been specifically written down. Where then was the promise of reserved and delegated powers?

Madison summarized his concern poignantly on the floor of the House: “With all this evidence of the sense in which the con

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Is There Such a Thing as a “Libertarian” Electoral System?

In a few hours, polls open in the United Kingdom for local and devolved elections and for a referendum on moving to a new electoral system, Instant Runoff Voting, which Brits and Aussies insist on calling, undescriptively, “alternative vote” (AV). This referendum came about as a demand of the Liberal Democrats, who held the balance of power in the hung parliament elected last year. The Conservatives agreed to hold the referendum but have campaigned against it. The Lib Dems, for their part, prefer proportional representation with multi-member constituencies, but decided AV was better than nothing. (Lib Dem leader and deputy prime minister Nick Clegg is on record as having called AV a “miserable little compromise.”) The Labour Party is split on the reform.

Indeed, AV has many flaws. Compared to the plurality, single-member-district system used in the US, UK, and Canada currently (sometimes called, somewhat inaccurately, “first past the post”), it should at least get rid of the wasted vote problem, in which voters decide to vote for the lesser of two evils because their favored candidate cannot win. But it does so at the price of removing small third parties’ blackmail power. For instance, in the US a Libertarian would have no chance of winning, arguably even if AV were the electoral system. But at least under the current system, a Libertarian candidate can take away votes from a Republican (usually, but not always, Libertarians siphon more votes from Republicans than Democrats) and cause the Republican to lose a tight race. Therefore, Republicans at least occasionally have to pay lip service to Libertarian causes to keep those votes.

Within the UK context, AV would essentially mean a “permanent progressive majority” for the foreseeable future, since

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Canadian Election Post Mortem

As a neighboring, wealthy country of 35 million people, about as many as live in California, Canada certainly gets less attention from Americans than it deserves. Here are a few of my thoughts on the historic results of yesterday’s Canadian election and their broader significance.

1. The results help point up the perversities inherent in single member district plurality electoral systems. The Conservatives won well over 50% of the seats with a touch under 40% of the vote, as the left-wing NDP’s surge confounded tactical voting for the candidates of the center-left Liberal Party in ridings where the latter was better placed to win. I would not be surprised to see attempts to unify the left in a single party, as eventually happened on the right between the Alliance and the Prog Cons.
2. The secessionist Bloc Québécois was thrashed, losing 40% of its vote from 2008 (already a down year for the party) and over 90% of its seats. Apparently left-wing nationalists deserted the BQ in droves for the NDP. NDP leader Jack Layton successfully made the case that it was “safe” for left-wing Quebec nationalists to support an anti-nationalist party on ideological grounds. The BQ has tried to remain centrist in the Quebec context (slightly left of center in the Canadian context), but this attempt to appeal to Quebec’s left-right median opens them up to flank attacks.
3. Some of my research shows that secessionist parties lose ground when the countrywide economy does badly, presumably because under such circumstances traditional left-right economic policy concerns take precedence with voters over constitutional questions. The effect is small and somewhat uncertain, but this may be part of what is going on. (It wouldn’t, however, explain the SNP’s approaching triumph.)
4. A stronger reason for the decline in salience of the independence-unity spectrum in Quebec politics is the moribund nature of the sovereignty question. Another referendum is not on the cards for a long time to come, nor is any kind of comprehensive new-federalist settlement, so it is natural that at a certain point many moderate Quebec nationalists would stop voting purely on expressive grounds and start to try to exercise some influence over policy-making at the center. The BQ (and its provincial counterpart, the Parti Quebecois) will need to give voters reasons to expend their votes on them, when the other federal parties have essentially ruled out giving them a say in policy, either as part of a formal coalition or as part of a confidence-and-supply agreement. And the sovereignty question will not rise again until Quebec’s long-term relative economic decline (and growing dependence on federal equalization payments) is sorted.

Update: For further thoughts about what this election means for Quebec, check out Saideman’s Semi-Spew.

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Barrier to Reform: The Customer is Always Right

In today’s NYT column, Paul Krugman asks a question that is interesting only because it leads me to a broader question. First Krugman.  He notes that the GOP budget proposal promotes reforms to “make government health care programs more responsive to consumer choice.” Krugman then asks: “How did it become normal, or for that matter even acceptable, to refer to medical patients as ‘consumers’?”

This question struck me not because it is in any way mystifying but because I was at the EPA’s website yesterday and ran across number references to “customers.” One charming document asks “Who Are EPA’s Customers?”The answer includes “the public.”

I could cite more examples (the EPA’s search engine reports 38,700 documents with “customer”). And the EPA is not alone. Even the CIA reports: “The Intelligence Community’s number one priority is to provide its customers with the best possible custom-tailored intelligence whenever and wherever they need it. Our ability to do so depends, in large part, on how well we understand and respond to customers’ needs and on how much our products help them do their jobs.” I didn’t bother to see if water boarding was available at the drive through window.

The shift to a “customer” orientation came in 1993, as the Clinton Administration embarked on its “Reinventing Government” initiatives. As you will recall, President Clinton and Vice President Gore initiated the National Performance Review and sought to bring the best lessons from the private sector to the public sector. As part of this effort, President Clinton issued Executive Order 12862, “Setting Customer Service Standards.”  The EO had some charming directives, including:

Section 1. Customer Service Standards.  In order to carry out the principles of the National Performance Review, the Federal Government must be customer-driven.  The standard of quality for services provided to the public shall be: Customer service equal to the best in business.  For the purposes of this order,”customer” shall mean an individual or entity who is directly served by a department or agency.  “Best in business” shall mean the highest quality of service delivered to customers by private organizations providing a comparable or analogous service.

Are citizens really best understood as customers? If so, what are the ramifications?

This may seem like a trivial point, but there is a significant difference between being a citizen and being a customer. Citizenship, in its classical sense, involves obligations to the community and the need to engage in deliberation. It is infused with honor and virtue and is part of what it means to be truly human (in Aristotle’s words: “To take no part in the running of the community’s affairs is to be either a beast or a god!”). Customers, in contrast, are simply those who purchase a product or service.

When I see polls revealing that the vast majority of Americans do not want any entitlements cut nor do they want to pay higher taxes (of course, they always want the wealthy to pay their “fair share”), it troubles me. As citizens, they should reflect on the incompatibility between current levels of spending and taxation; they should choose honorably to make sacrifices to prevent fiscal imbalances from creating a dire situation for future generations.

But as customers, the logic is altogether different. Customers should demand the most they can get for their money and if services are being provided at a deep discount (e.g., subsidized by future generations of customers), all the better. And if customers seem unreasonable in their demand for products and services, the best one can do is mutter the age old dictum: “The customer is always right.”

Customers love a sale. Customers do not voluntarily request to pay retail. Customers also vote and one can expect that they will vote for those who are willing to extend the sale for two, four, or six more years.

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Interposition: Part Four: New York and the First Act of Interposition

New York was Hamilton’s great project. So closely divided was the state, that at various moments, he despaired of its coming into the union.

At one point the Antifederalists offered a compromise. They would support a conditional ratification dependent on the passage of certain key amendments, including the all important construction of delegated and reserved powers, or what eventually would become the Tenth Amendment. Hamilton wrote Madison for his opinion of the proposed compromise, and the response was unyielding: New York could “not be received on that plan.” It must be, Madison elaborated, “an adoption in toto, and forever.” Hamilton read the letter aloud to the Convention and it is reputed to have steeled the nerves of the Federalists for resistance. Rather than read, “on condition,” New York’s statement of ratification was amended to say, “in confidence.” The statement ran thus:

“Under these impressions, and declaring that the rights aforesaid cannot be abridged or violated, and that the explanations aforesaid are consistent with the said Constitution, and in confidence that the amendments which shall have been proposed to the said Constitution will receive an early and mature consideration, — We, the said delegates, in the name and in the behalf of the people of the state of New York, do, by these presents, assent to and ratify the said Constitution.” (Emphasis added)

In his America’s Constitution, A Biography (2005) p. 38, Ahkil Reed Amar concludes that this wording cinched the case against conditional ratification based upon powers reserved to the people of the states. Amar’s particular aim was to put any idea of legal secession to rest, but he also went on to implicate other forms of interposition as well.

Not so fast.

Amar stopped his reading at a point altogether too convenient for his thesis. Here is what the rest of the paragraph said:

“In full confidence, nevertheless, that, until a convention shall be called and convened for proposing amendments to the said Constitution, the militia of this state will not be continued in service out of this state for a longer term than six weeks, without the consent of the legislature thereof; that the Congress will not make or alter any regulation in this state, respecting the times, places, and manner, of holding elections for senators or representatives, unless the legislature of this state shall neglect or refuse to make laws or regulations for the purpose, or from any circumstance be incapable of making the same; and that, in those cases, such power will only be exercised until the legislature of this state shall make provision in the premises; that no excise will be imposed on any article of the growth, production, or manufacture of the United States, or any of them, within this state, ardent spirits excepted; and the Congress will not lay direct taxes within this state, but when the moneys arising from the impost and excise shall be insufficient for the public exigencies, nor then, until Congress shall first have made a requisition upon this state to assess, levy, and pay, the amount of such requisition, made agreeably to the census fixed in the said Constitution, in such way and manner as the legislature of this state shall judge best; but that in such case, if the state shall neglect or refuse to pay its proportion, pursuant to such requisition, then the Congress may assess and levy this state’s proportion, together with interest, at the rate of six per centum per annum, from the time at which the same was required to be paid.”

Here the representatives of the people of the state of New York fairly put the new government on notice in no uncertain terms that they reserved certain powers to their own legislature.

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Nationalists Open Up Big Lead in Scotland

On May 5, Britain votes in a referendum on a new electoral system called “alternative vote,” also used in Australia (polls show it going down to defeat), but in Scotland and Wales, there are also elections to the devolved parliaments. The Scottish National Party (SNP), which advocates independence for Scotland within the E.U., is heading up a minority administration with about 36% of the seats in the Scottish Parliament.

Now, a new poll shows the SNP opening up a big lead in the upcoming election, with 45% in the constituency vote and 42% on the party-list regional ballot. Since Scotland has a compensatory mixed-member system like Germany’s, the latter percentage is the better guide to the ultimate seat breakdown. If the SNP indeed wins north of 40% of the seats, they may have enough votes to authorize a secession referendum with the support of minor secessionist parties like the Scottish Greens and Scottish Socialists. Whether such a referendum could obtain the requisite 55% of the vote is doubtful, but such a step would be historic nonetheless.

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Are Americans Underrepresented?

One overlooked electoral reform to decrease the power of special interests in the U.S. political process would be to expand the size of the U.S. House quite significantly, so that legislators cater to much smaller electorates. (More radically, state partition could also be promoted to expand the size of the Senate.) Accordingly, I thought today’s Daily Chart from the Economist was telling:

Of the world’s 22 most populous countries, the U.S. has the second-most people per national legislator.

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Support for Gay Marriage Now the Majority Position, Say Several Polls

Popular support for gay marriage has been rapidly increasing in the last two years, and several polls now show that support for gay marriage is a plurality or majority position in the American public, according to research by Nate Silver. This shift in public opinion is happening far too rapidly to be due to generational replacement, so it must be the case that many people have changed their minds. What could be the reason for the sudden shift in many Americans’ views? Silver points out that parties and candidates are placing less stress on opposition to gay marriage than they once did, creating a feedback loop in which public opposition to gay marriage further softens. It may also be that once public opinion reaches a tipping point at 50%, opposition rapidly declines because Americans don’t wish to see themselves as being on the losing side of history.

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Rational Ignorance, Part the Googolplexth

Public opposes all proposals for cutting the deficit, except raising taxes on those making over $250,000 a year.

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The Future of Free Cities, Part 2

In my first post on last week’s “Future of Free Cities” conference, I discussed the legislation Honduras has put forward to authorize the creation of new “free-market cities.” In this second look at the conference, I summarize the discussions and some of the points I came away with.

The first talk on the main day was by Kevin Lyons, co-founder of Consent Unlimited, on “A Legal Strategy for Immediately Creating Private Free Cities” (video here). The strategy is essentially to include clauses in private contracts that stipulate that disputes arising under this contract will be judged under the law of X, where X can be Hong Kong, the United States, or a private arbitrator. This strategy should help people in countries with corrupt or irrational legal systems reduce transaction costs. Of course, the two limitations are that it doesn’t exempt you from criminal or regulatory penalties (you couldn’t use it to get out of health insurance mandates), and that ultimately the validity of those very contractual clauses can be contested in the courts of the country where you are attempting to have the contract enforced. On the former issue, however, Kevin maintains that most judges will uphold contracts that are entered into clearly voluntarily. I worry about one branch of the government’s not respecting what the other is doing, however.

Next, ex-Mexican businessman Ricardo Valenzuela spoke on “Free Cities: A Solution to Mercantilism in Mexico” (no video yet). Ricardo’s talk focused on the problems he has faced as a businessman in a market-hostile country. When he was young, the state expropriated most of the ranch his father had acquired through a lifetime of work. Then he went into banking, and the day after he became president of the bank, he went to work to find it surrounded by soldiers: it too had been nationalized. After that, he fled to Arizona. I wish my students had seen this talk, just so that they could put a face to “expropriation risk.”

Next, I gave my talk on “Secession as a Continuum” (video here). It was a distillation of some of the arguments and findings in my forthcoming book Secessionism: Identity, Interest, and Strategy (McGill-Queen’s University Press). I argued that full secession is not necessary for the types of autonomy most libertarians want. On the other hand, secessionism can be useful leverage to provoke concessions, provided the threat of secession is credible.

After a break, we had a series of four talks: economics professor Fred

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The Future of Free Cities, Part 1

I am currently blogging from Roatán, Honduras, where I am participating in the “Future of Free Cities” conference, sponsored by Universidad Francisco Marroquín. The conference is about the economic and political preconditions for the establishment of free-enterprise zones in developing countries, as well as the internal governance of these territories. In his opening talk last night, Michael Strong used the rapid growth of Hong Kong, Singapore, Dubai, and Shenzhen to argue that economic freedom is an essential prerequisite to the elimination of poverty, and eliminating poverty is a moral imperative.

Much of the discussion here has revolved around a recent constitutional amendment passed in Honduras to establish “special development regions.” Here is a summary of the features of this amendment:

• The government of Honduras has the option to create one or more REDs, but is not required to do so.
• To create an RED and establish its basic system of governance, the amendment requires that the Congress pass a piece of enabling legislation that they call a Constitutional Statute. This requires a two-thirds majority to pass. A subsequent Congress can change this enabling legislation only with the same two-thirds majority and approval by referendum from the citizens living in the RED.
• The REDs would be areas with their own legal personality and jurisdiction, their own administrative systems and laws. An RED can also negotiate international treaties with partner countries or organizations. Congress would need to ratify these international treaties with a simple majority.
• Judges for its judicial system will be nominated by the governing authority in the RED but subject to approval by a 2/3rds majority in the Congress. The judicial arrangement would allow the use of an external body that acts as the court of final appeal for judicial decisions from the zone.
• Laws developed by the governing authority of the RED require a ratifying vote by the Congress. This vote would be a simple vote to approve or reject. Approval requires only a simple majority.

From discussions with people here, I have gathered that

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Interposition:Part Two: Publius and the Federal Check to National Power

Among the defenders of the Constitution, a great deal was said about the states as a check to the power of the national government that informed the first ideas about interposition. 

Madison’s contention in Federalist 39 is well-known. Our union was to be “partly federal and partly national.” Among the premier federal attributes were such provisions as the equal representation of the states in the Senate by senators appointed through state legislatures, portions of the Electoral College, portions of the amendment process, and the very means of ratification through conventions of the sovereign peoples of the various states.

This last attribute is often not given the attention that is due to it, but James Madison made this point repeatedly in other venues as well. He noted it in various letters and in the state ratification convention in Virginia. It is a major part of the argument against the notion put forward by his critics that the Constitution would establish a consolidating government.

Here is what Madison’s Publius said: “[T]his assent and ratification is to be given by the people, not as individuals composing one entire nation, but as composing the distinct and independent states to which they respectively belong. It is to be the assent and ratification of the several states, derived from the supreme authority in each state…the authority of the people themselves. The act, therefore, establishing the constitution, will not be a national, but a federal act.”

This point was repeated again in Virginia’s ratifying convention. The reason was to assure the Constitution’s critics that the sovereign power of the people of the states was not being usurped. If a simple national majority, he reasoned, were all that was required to form the union, then the majority of all the people of America could bind Virginia or Rhode Island even if they had voted in the negative. This was not the case he assured his opponents.

But beyond ratification, did this conception of sovereign power have any other constitutional implications for the states? What exactly is the relationship between the people of the states and the national government? What if there is a dispute between them? This is where Publius becomes more ambiguous, and it is from here that much of the controversy concerning Madison himself originates.

In the same essay, Madison went on to argue that national supremacy meant that a national tribunal must determine the legitimacy of national laws, at least “so long as they are objects of lawful government.” Setting aside for a moment what is meant by “lawful,” he asserted, “It is true, that in controversies relating to the boundary between the two jurisdictions [state and national], the tribunal which is ultimately to decide is to be established under the general government.” This is necessary, he believed in order “to prevent an appeal to the sword, and a dissolution of the compact.” Really?

Where then resides the hoped for check to centralization? Here it rests on the impartiality of the judges of the court, for whom “all the usual and most effectual precautions are taken to secure this impartiality.” The difficulty is that the very contest presumes an illegality. A state would not contest a national act unless it thought the act to be unlawful; that is to say, not permitted by the Constitution. Is it then reasonable to conclude that they will rely upon the judgment of a national court?

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Interposition: Part One: An Essential Purpose of the States

A rumble can be heard emanating from assemblies and governor’s mansions across these fruited plains. It is a sound reminiscent of by-gone days that echo down through centuries of constitutional thought. Prompted by everything from unfunded Congressional mandates to the new omnibus healthcare bill, (See here and here) these reverberations strike cords of distant legal memory that are, for most of us, only imperfectly recalled.

For many, talk of state’s rights, interposition, and even nullification brings forth unsavory recollections of illiberal and tyrannical state and local institutions of chattel slavery, Jim Crow and the color bar. That association is understandable given the prevailing interpretation presented in classrooms, but very unfortunate if we stop there.

One of the most essential roles of states in any federal system is to act as counterweights to centralization. For this reason all power is not assigned to the national authority. In the original constitutional design of the American federation, what was not given was reserved to the states or to the people thereof, and it is from this perspective that the check to central power, the bite of Federalism, was to be derived in its most essential forms.

The idea of states as checks to national concentration pushes the bounds of constitutionalism, but it was understood that however approached, and by whatever means undertaken, this role was not to be pursued for light or transient reasons.

The idea of interposition took many forms. It could embrace official expressions of disapproval by the legislature or governor of a state. It might entail simple, non-cooperation with federal authorities, such as a refusal to enforce a federal law, or acknowledge a mandate. Or, it might take the form of an unofficial understanding on the part of local groups and institutions, usually operating under the tacit approval of the state, not to comply with federal measures.  In its most extreme form, interposition could assert the right to interdict the enforcement of an offending provision through an act of outright nullification. How far a state might go in pursuit of this last line of interposing itself is a question of some delicacy.

Preventing by official policy or action the enforcement of a federal measure stresses the limits of constitutionality. If either of the contending powers moves from peaceful toleration or acquiescence to violence, the episode takes us from the realm of the legal to the revolutionary. For this reason, nullification has always been the most dangerous and the most controversial form of interposition.

The basis for the authority of all these options, however, remains rooted in the constitutional ideal itself. It was not the product of a mean or unnecessary political expediency. On the contrary, the idea of interposition was an attempt to sort out a vital constitutional principle and was first articulated, not to defend slavery, but to support free speech, free trade, peace and the liberty of fugitive slaves.

Federalism in all its various forms can be an instrument for good as well as ill. Like any political order, its quality is determined by the people who compose it. To really understand why the states are again making noises of interposition, we need to understand something of the history of our federal structure of government. The reason new life is breathed into old thoughts has everything to do with what rests at the center of our political existence.

Why do we have states? Lincoln made the claim that the Union preceded the states. What he could not say, however, was that the federal government as constituted in 1787 preceded them, because clearly it had not. The main thrust of Lincoln’s reasoning was that the Revolution and the move for independence began as a united effort. The implications of that claim are still debated and one need only recall the exchanges between Mel Bradford and Harry Jaffa on this point. What is certain, however, is that the federal government did not create the states. What then is the role of states in our federal order?

The authors and advocates of the Constitution, whatever they may have thought privately, were not free to assert any desired construction, but had to contend for the support of the peoples of their various former colonies. They needed to address directly the concerns of liberty that had animated the move to independence, and more specifically they had to allay the fears raised by their critics, the Antifederalists. In this way, whatever hidden motives might have existed, it is the stated intentions of the Federalist advocates that must bear legal weight.

Among the primary objects of the Revolution was to secure the liberty of the colonies to determine the disposition of their own properties, free from arbitrary imperial commands. American anxieties of the late eighteenth century grew in direct proportion to the growth of imperial designs by King and Parliament.

The Antifederalists are often called the old revolutionaries as much for their actual age as for their adherence to older ideas about colonial liberties. The list of such advocates is long and venerable: Brutus, Federal Farmer, Cato and Centinel. My favorite, however, is one not so generally recognized, but to my mind, gave the reasons for decentralization and the existence of states most succinctly and eloquently: Maryland Farmer. He took a long range perspective based on some very ancient precedents.

Edward Gibbon’s first volume of The Decline and Fall of the Roman Empire came out in 1776, and like other important works of its time, Americans were eager to read it. By the time of the Constitution, Maryland Farmer had imbibed its central lessons and recognized how closely its themes complimented American experience. He disputed the charge often heard that the states, if not united under one supreme head, would soon be at each others throats. No, he said, citing Gibbon, real terror is to be found where there is no hope of escape, no exit.

Anticipating the role of competing jurisdictions, Maryland Farmer cautioned against rejecting the Articles of Confederation, observing that “In small independent States contiguous to each other, the people run away and leave despotism to wreak its vengeance on itself; and thus it is that moderation becomes with them the law of self preservation.”

The referenced passages of Gibbon illustrated that understanding nicely. Noting the ease with which a person onerous to power could escape in the Europe of his day to the safety of a rival state, Gibbon pointed to the very different reality of the ancient empire: Rome, he observed, came to fill the world, “and when that empire fell into the hands of a single person, the world became a safe and dreary prison for his enemies.”

Maryland Farmer took that point to heart and asked Americans, who had just fought a war to resist the imperial designs of England, was it all simply to consolidate power in your own hands? He hoped not.

So strong were these sentiments in favor of decentralization, Federalists had no choice but to address them. Some of the most eloquent passages of the Federalist Papers were set out with the explicit aim of refuting the consolidationist claims of the nature of the Constitution. Indeed, more than one of those pieces by Publius was penned by that arch purveyor of centralized authority himself, Alexander Hamilton. In the next part we will examine how Publius attempted to negotiate the question of a federal check to national power, and look at the roots of interposition as they were presented by the supporters of the Constitution.

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Interposition: The Teeth of Federalism: Introduction

The first of a series will begin tomorrow, the Ides of March (the 15^th), an appropriate time to initiate an investigation of interposition and federalism in America. On that date in 44 B.C., Julius Caesar was slain for his offences against the Roman Republic. It was a futile act of desperation. The empire was not defeated, but the event remained a symbol for millennia of resistance to tyranny and concentrated power. This series will attempt to investigate the spirit of that resistance as it relates to our federal system of states as counter or makeweights to centralization through the instrument of interposition: what is its history and constitutional forms, and whither should it go now?

 In a recent spate of books, attention has been given to the place of the states in our federal union. More particularly, the subject of nullification has been the focus of Thomas Woods’ latest works, one of which is specifically by that name. In that book, Woods delves into certain key aspects of America’s constitutional history, but quickly focuses on what is a fairly specific subset of a much larger category of constitutional ideas embraced by the term, interposition.

Interposition is where a state or other organs of local governance and/or civil society attempt to intercede between the people and an act of the federal government that is deemed unjust or unconstitutional. This can take many forms, moving from the merely declaratory and/or uncooperative to the more extreme modes of obstruction or even interdiction. Nullification occupies the last of these categories. It is the outer edge of the continuum. It attempts to provide legal grounding for a state to directly obstruct enforcement of an offending federal measure, and is of all the instruments available to a state or people, the most dangerous and problematic.

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Bootleggers, Baptists and the Badger State

Many of you recognize the term “bootlegger-Baptist coalition,” first introduced by Bruce Yandle in Regulation (1983). The bootleggers essentially secure transfers under the moral legitimacy provided by the Baptists (the metaphor refers to the common interest of Baptists and bootleggers in securing regulation of alcohol sales). For those of you who have not encountered this term before, there is a fine piece by Randy Simmons, Ryan York, and Dianna Thomas in the Winter 2011 edition of the Independent Review entitled “Bootleggers, Baptists, and Political Entrepreneurs.”

As used by Yandle and others, the term refers to the rather counter-intuitive coalitions that often emerge around regulatory policies. Yet, one wonders whether there has been something of a bootlegger-Baptist coalition in the Badger state. I know a number of public school teachers and I am persuaded that they (and many of their representatives) are convinced that the National Education Association and its state affiliates are interested in educational quality. For them, it may be “about the children.” They may be the Baptists, to use Yandle’s metaphor. Who then are the bootleggers? There are many candidates, of course, but one may be the union’s health insurance company.

According to an article in today’s Milwaukee Journal-Sentinel, two-thirds of the state’s teachers are insured by the WEA Trust, the health insurance corporation created by the Wisconsin Education Association Council (WEAC), the state affiliate of the NEA. Because WEA Trust secures its business via collective bargaining agreements, it has not been subject to the same competitive environment as other insurers.

Brown Deer school district (1800 students) decided to break with WEA Trust at the beginning of the fiscal year. As a result “the district saved $170,000 in just one year – the equivalent of at least two teachers.” Of course, the decision to change insurance carriers (but not reducing the level of benefits) generated an interesting result:

Earlier this year, the Brown Deer district’s teachers union filed a complaint with the Wisconsin Employment Relations Commission over the district’s decision to switch from WEA Trust. Koczela [director of finance for the Brown Deer School District] suspects the move was aimed at protecting the insurance company rather than the employees’ benefits, which she said remained the same with the lower-cost carrier.

Now that the districts have been freed from collective bargaining over benefits, they are free to drop WEA Trust. Governor Scott Walker claimed that simply providing teachers with the same health care program enjoyed by state employees would save taxpayers $68 million a year (a claim that WEA Trust rejects) and others would place at the low end of the range. Whether they avail themselves of these savings—and whether the savings are as advertised—remains to be seen.

How much is collective bargaining worth to WEA Trust? An analysis released last year by the Education Action Group and the John K. MacIver Institute for Public Policy, reported that school districts that cover 100 percent of the premiums paid WEA Trust $1,724 per month (family coverage); those who went with non-WEA coverage paid $1,466 per month. This was based on data on 364 school districts provided by the Wisconsin Association of School Boards. As a result of these premiums and the barriers to entry created via collective bargaining agreements, WEA Trust has amassed over $316 million in net assets (2009). Although WEAC and the WEA Trust share a common address, they are separate entities. It would be illegal for WEA Trust to simply transfer resources to the union (although the above mentioned report suggests that it may contract for services with the union).

For those interested in more on this topic, here is a link to a brief analysis conducted by the Wisconsin Policy Research Institute (the original source of Walker’s claims).

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Regional Inequality

The latest Economist has an interesting feature on inequalities among regions within countries. The article compares countries on their ranges in GDP per head (the ratio of richest region to poorest). Thus, we get charts like the following:

But range is an extremely crude concept for measuring inequality. In the U.S., the District of Columbia is by far the “richest” “state,” because its large number of commuter workers generate large GDP without figuring into the denominator. Moreover, the use of the range to illustrate dynamics over time is misleading:

This chart makes it appear that the U.S. has rapidly growing regional inequalities. But the increase here is being driven by D.C. again. The growth of the federal government has concentrated ever more GDP in the District, causing its numbers to look increasingly out of whack with the rest of the country.

A better approach is to compare rates of regional GDP per head convergence. Convergence is the phenomenon whereby poorer economies tend to “catch up” to richer ones. A rough-and-ready benchmark for “good” convergence is an annual rate of about 2%. Econometricians derive rates of convergence in GDP per capita by regressing annualized GDP per capita growth on initial GDP per capita for a dataset of economies. I have calculated regional convergence rates for Canada (provinces and territories), the U.S. (states and D.C.), and the European Union (member states before 2006) over various periods. Here are the results:

The “equalization” column indicates whether the federal system has extensive equalization payments that give grants to poorer regions. The EU does have a nominal equalization program, but it does not redistribute much money. Of these systems, only Canada has a truly extensive equalization program.

Despite this, Canada’s convergence record is the worst of these systems, although the differences between the U.S. and Canada are small. Over the entire 1981-2005 period, U.S. states converged at 1.9% per year, while Canadian provinces did so at 1.6% per year. The EU clearly has the best convergence record, with a massive 8.0% annual convergence rate during the 1995-2005 period, which saw the rapid rise of Ireland, Greece, Spain, and Portugal, relative to the rest of the EU. (Eastern European countries are not included in these numbers, because they had not joined the EU yet.)

This evidence suggests that decentralized federal systems do a pretty good job of getting rid of regional inequalities, even without equalization programs. In a paper currently under “revise-and-resubmit” at an economic geography journal, I present much more formal and systematic evidence to this effect. If and when it is published, I will revisit the topic.

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