Interstate Protectionism and the Dormant Commerce Clause

All 50 states ban the direct sales of motor vehicles from manufacturers to consumers. The politics of this regrettable policy are clear: auto dealers are powerful political players in every state, while only a few states actually have manufacturing facilities. Banning direct manufacturer sales benefits dealers while hurting manufacturers and consumers.

State governments continue to insert themselves into the contractual relationships between car manufacturers and dealers, typically to the ostensible benefit of the latter. The New Hampshire Senate recently passed a bill regulating the terms and conditions of dealer contracts with manufacturers, prohibiting manufacturers from requiring dealers to alter the appearance of their showrooms, for instance. (Disturbingly, the state director of Americans for Prosperity in New Hampshire supports the bill.) The bill is actually unlikely to change any “balance of power” between automakers and auto dealers. Automakers will simply respond by vetting potential dealerships far more closely and perhaps charging higher franchise fees. The onus of this response is likely to fall more on new dealerships than on incumbents. So the real losers from the bill are going to be potential entrants into the car dealer industry and, of course, consumers.

These are not the only examples of “state protectionism,” in which state governments adopt laws meant to reduce competition from out-of-state businesses for the benefit of local incumbents. Some states still prohibit certain out-of-state direct-to-consumer wine shipments. Regulatory barriers can accomplish the same ends. States have widely varying regulations on insurance products, making regulatory compliance a huge barrier for a company trying to market a standard policy in multiple states. For a long time, major life insurance companies lobbied Congress to adopt a national life insurance regulatory regime, pre-empting state laws. They were opposed by local life insurance agents, for whom knowledge of and compliance with distinctive state regulations were a significant source of competitive advantage. In the end, no national legislation materialized, but Congress authorized the formation of an interstate compact, essentially a contract among consenting states that sets up a single insurance regulator. More than 40 states have joined the Interstate Insurance Product Regulation Commission, which regulates life insurance and annuities.

Such state protectionism potentially runs afoul of the so-called “dormant commerce clause” of the U.S. Constitution. The commerce clause allows Congress to regulate trade among the several states. By implication, then, states are presumptively prohibited from burdening interstate trade, unless authorized by Congress. Unfortunately, courts have been reluctant to scrutinize state economic regulations that have an essentially protectionist character, although especially blatant discrimination against out-of-state imports has been overturned.

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New Hampshire Supports Legalizing Marijuana

An interesting new poll from Public Policy Polling shows strong support for marijuana reform in New Hampshire:

For legalization (taxing and regulating marijuana like alcohol, with licensed stores): 53%. Opposed: 37%.
For decriminalization (replacing criminal penalties for possession of less than an ounce with a fine): 62%. Opposed: 27%.
For medical marijuana (allowing seriously or terminally ill patients to use marijuana if their doctors recommend it): 68%. Opposed: 26%.

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Should State Parties Change Their Names?

In Canada, provincial parties are totally organizationally independent of federal parties and may not even have the same names. Thus, the British Columbia Liberal Party has generally been right-of-center, and British Columbia Liberals tend to vote Conservative at the federal level. Quebec Liberals have generally been more Quebec-nationalist/decentralist than the federal Liberals. Most provinces have parties named “Progressive Conservative,” even though there is no longer any federal Progressive Conservative Party. And so on.

Of course, it doesn’t work that way in the U.S. State (and even local) elections feature Republican and Democratic candidates, except in Nebraska, where state legislative elections are nonpartisan. As a result, state election results are driven by national trends. Surprisingly, political scientists had not formalized this insight until recently. Here is a paper from Steven Rogers:

State legislative elections are not referendums on state legislators’ own performance but are instead dominated by national politics. Presidential evaluations and the national economy matter much more for state legislators’ elections than state-level economic conditions,  state policy outcomes, or voters’ assessments of the legislature. Previous analyses of  state legislative elections fail to consider which party controls the state legislature and whether voters know this information. When accounting for these factors, I discover that even when the legislature performs well, misinformed voters mistakenly reward the minority party. Thus, while state legislatures wield considerable policy-making power, elections are ineffective in holding state legislative parties accountable for their own performance and lawmaking.

Tyler Cowen calls this “the problem with federalism.” But it isn’t a problem with federalism as such. It’s a problem with U.S. federalism. In Canada, you can’t send a message to the federal government by voting against the incumbent federal party at the provincial level. (In fact, provincial elections are not held on the same days as federal elections.) Changing the perverse accountability dynamic of U.S. state legislatures may require something as simple as changing the names of state parties.

State parties may even have an incentive to do this. For instance, the Republican Party in New Hampshire could change its name to something like “New Hampshire Conservative Party” or “New Hampshire Party.” By doing so, it could help to insulate itself from the partisan swings at the national level that are beyond its control.

In the last election, New Hampshire Republicans lost majorities in the state house and the executive council. The reason for this was the

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Puerto Rico Status Referendum

Media are reporting the results of the Puerto Rico status referendum as if the statehood option had won. Now, it may indeed be the case that the resident commissioner will present legislation of accession to the Union in the House of Representatives, but only an oddly structured ballot devised by the pro-statehood party allowed the referendum to “succeed.” In fact, a majority of Puerto Ricans voted against statehood.

The ballot asked two questions. The first question asked voters, “Do you agree to maintain current territorial political status?” The “no” option received 54% of the vote, 934,238 votes of 1,730,245 valid votes. The second question asked voters to choose among three status options: statehood, associated free state, and independence. Statehood received 61.15% of the valid votes, 802,179 votes in all.

But note two things. First, many voters who opposed statehood in favor of, say, independence would have voted “no” on the first question. Second, 25% of the ballots on the second question were left blank, apparently out of protest at a question the pro-status quo party regarded as unfair. If you add blank ballots to the total on the second question, the statehood option received less than 45% of the vote.

This is a good example of how political leadership tries to use a cyclical majority to secure its favored alternative.

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The “New Hampshire Advantage”: Nearly Killed Off in 2009-10

Here is what my coauthor William Ruger and I wrote about New Hampshire in the 2011 edition of Freedom in the 50 States: Index of Personal and Economic Freedom:

New Hampshire is by our count the freest state in the country. Depending on weights, however, it really shares the slot with South Dakota. New Hampshire does much better on economic than personal freedom and on fiscal than regulatory policy. Under unified Democratic control in 2007-8, the state saw a respectable increase in freedom. A smoking ban was enacted, but so were same-sex civil unions. Taxes, spending, and fiscal decentralization remain over a standard deviation better than average, and government debt actually went down slightly.

We are going to write something very different in the 2013 edition, coming out early next year. The 2009-10 legislature, also under unified Democratic control, went on a spending and tax-hiking binge. They did this even as states like North and South Dakota were already strengthening market-friendly policies in many areas. As a result, New Hampshire will no longer be the freest state in the country — not by a long shot.

In fiscal year (FY) 2000, New Hampshire’s state and local tax burden (excluding motor fuel, severance, alcohol, and tobacco taxes) stood at 7.5% of personal income, not only the best in the country but only seriously approached by Tennessee. Government consumption and subsidies made up only 7.3% of personal income. By the end of FY 2006, with Republicans having controlled the legislature in the interim, those figures had edged up, to 7.9% and 8.1%, respectively. But by the end of FY 2010, government consumption and subsidies made up 9.1% of income, a nearly two-percentage-point increase over a decade, while the tax burden stood at 8.0% of income. State and local debt was at 18.8% of income, compared to 16.7% a decade earlier.

In the mean time, Alabama, Montana, North Dakota, Oklahoma, South Dakota, and Tennessee have all passed New Hampshire for lower taxes. We don’t yet have the local data to measure whether FY 2012 saw a return to public thrift under the new Republican legislature elected in November 2010, but when New Hampshire voters go to the polls Tuesday, they should remember where their state was two years ago.

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From the Department of Backhanded Compliments

Apparently NH lefties are passing around this lengthy condemnation of the Free State Project. Much of it, though, reads like something that could be put in an FSP recruiting brochure:

Free Staters in NH are generally intelligent, focused and diligent people, who are sincerely interested in promoting personal responsibility in its broadest meaning. They are committed to discussion and action on the issues and problems they see facing New Hampshire and the nation.

And:

The migration of Free Staters to New Hampshire has dramatically changed the political discussion here.

And:

Here is an alternative perspective on the FSP from the same Foster’s article, which the passage of time has shown to be more accurate than the others in it:

“Dave Corbin, a University of New Hampshire political science instructor, said the Free Staters could accomplish many of their goals even if only a fraction of the proposed 20,000 moved here. ‘Those who are analyzing the potential effects of the group on the basis of numbers alone are not looking at the situation deeply enough’, he said.

‘Let’s say only 4,000 of them move here. You wouldn’t just say ‘What’s 4,000? That’s only a drop in the electoral bucket.’ That’s not looking at the situation properly . . . When you talk about those people who are politically active in New Hampshire, you’re only talking about 5,000 people; those are the people political candidates target. If you have (only) 1,000 people (from the Free State Project) coming here to make a difference, they will,’ Corbin said.

Corbin pointed out how important activists are to any political campaign, as an index of the influence Free Staters could eventually achieve. Each individual activist represents not just one person, but all the people they will persuade. ‘Any time you have a campaign and you have an activist, you know you have 20 or 30 times the number of votes as activists,’ he said. (emphasis original)

But then there’s the scaremongering (all-bolded!) conclusion:

More New Hampshire residents need to wake up to the reality of the Free State Project.

We can’t wait for the Union Leader and NH Public Radio to fill us in on how expansive the Free State Project’s plans are for New Hampshire, – and how this plan is playing out now on the ground. We need to find out for ourselves, and we need to tell others.

We need to confront Free Staters in our towns, and at all levels of government. And then we need to force them, as proper citizens, to have endless conversations with their fellow residents about New Hampshire’s future. We cannot let them make over the State of New Hampshire in their own libertarian image.

Of course, partisan hacks (and yes, they exist on the right too) would rather resort to scare tactics than honest and open dialogue, and that attitude is always wearisome wherever one finds it, but at the same time, it is encouraging that the FSP has moved beyond the “first, they ignore you” stage to the “then they fight you” stage.

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Walker, Republicans Dominate in Wisconsin Recall (Updated)

As I write this, Republican Scott Walker is flirting with a 60-40% landslide victory over Democrat Tom Barrett in the Wisconsin recall election. The GOP state senators up for recall are also all leading by 20%+ margins. While the counting is early yet and those margins may come down (even though the races have been called), the county-level results are showing Walker almost uniformly outperforming his 2010 showing, which was of course a very Republican year. What accounts for this overwhelming victory, which seems to defy much of the polling (although one late poll had Walker up 12) as well as the CNN exit polling?

We can discard one possible explanation right away: low turnout. In fact, the election had very high turnout, about 60% of the eligible electorate, which is normally thought of as favoring Democrats. It is possible that Republicans were more motivated than Democrats and turned out in particularly high numbers, and indeed Walker was more likely to outperform his 2010 performance in counties that were Republican to begin with. So differential turnout remains a strong possibility, but merely invites a further question: Why did pro-Walker voters turn out in greater force?

Another possibility is that Walker is quite popular and that the median voter strongly favors his collective bargaining reforms. This is likely part of the explanation, as polls show majority approval of Walker’s job performance and his collective bargaining reforms, but he still seems to be outperforming even these polls in the recall election.

The third piece of the puzzle may be that some people who oppose Walker and his reforms actually voted for him because they did not believe in using the recall process. The exit polls, flawed as they apparently were, show a strong majority in favor of the view that recall elections should be used only in cases of official misconduct. However, I remain skeptical that very many voters would actually cast a vote in favor of a candidate to which they were opposed. Ideology almost always trumps process concerns for voters. What may have happened is that the process concerns kept moderate Walker opponents home disproportionately, thus contributing to the GOP turnout advantage.

UPDATE: Despite the apparent county-level improvements over 2010 for Walker in the early counting and huge leads for the Republican senators, the final count ended up much closer than the early results. In fact, one of the Republican senators was defeated. The early precincts to report must have been overwhelmingly Republican across the state. The closer final count makes me think that the “process” issues were a lot less relevant to voters than the media spin would have it.

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NH Legislature Passes School Choice by Veto-Proof Majority

The New Hampshire House and Senate have overwhelmingly approved a bill that would give businesses tax credits for contributing to scholarship funds, which could make payments on behalf of students attending private schools. Even if the governor vetoes, the bill should pass into law. According to the Ruger-Sorens database of state policies, New Hampshire will join Arizona, Florida, Illinois, Iowa, Minnesota, and Pennsylvania in offering tax credit or deduction programs for private education.

(Nota bene: The New Hampshire Supreme Court has previously ruled that giving tax relief to parents for sending children to religious schools would violate the establishment clause of the state constitution. Thus, this sort of program is the only way that full school choice that includes religious schools can be enacted in New Hampshire.)

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NH GOP Kills Gay Marriage Repeal

The New Hampshire House, dominated 3-to-1 by Republicans, has just voted by an approximately 2-to-1 majority to kill a bill that would have repealed same-sex marriage and reinstate civil unions. Along with passage of marijuana decriminalization (by a single vote), this vote helps to demonstrate the increasingly libertarian, live-and-let-live character of the New Hampshire GOP.(*)

Meanwhile, the NH Senate just passed a bill to give businesses tax credits for funding private and out-of-district public school scholarships.

(*) I am of two minds on same-sex marriage. I support it on a personal level, as I do not see any good reason for government or anyone else to discriminate against same-sex couples. At the same time, I recognize that some people have deeply held religious objections to same-sex unions and object to having their tax dollars pay for government endorsement of these unions. For that reason, I favor getting government out of marriage licensing altogether.

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New Hampshire Liberty-Related Bills

Here is a convenient, occasionally updated source on liberty-related legislation that has been enacted into law in New Hampshire this session. There have been a number of changes since the Republican sweep in 2010, some of them despite vetoes from the populist Democratic governor. Most of these changes are minor, but the cumulative effect of the spending and tax cuts, in particular, will be significant.

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NH Liberty Forum Report

I’ve recently returned from the New Hampshire Liberty Forum, held February 23-26 in Nashua, NH and sponsored by the Free State Project. The two evening keynote speakers were libertarian free-range farmer Joel Salatin and investor and recent U.S. Senate candidate Peter Schiff. In addition, session speakers included school-choice economist Angela Dills, former Libertarian Pennsylvania gubernatorial candidate Ken Krawchuk, jailed marijuana activist Marc Emery’s wife Jodie, economist John Lott, Institute for Justice litigator Clark Neily, libertarian-anarchist feminist Sharon Presley, and Laissez-Faire Books publisher and former Mises.org editor Jeffrey Tucker.

Unfortunately, I had to help take care of a sick child, and I missed most of the talks, including Joel Salatin’s Saturday-night address. However, I did get to hear Jodie Emery, Ken Krawchuk, and Peter Schiff, and, perhaps more importantly, to catch up with many New Hampshire friends. The event received a good bit of local press coverage. Some examples:

Wire NH:

Events like this and their annual summer Porcupine Freedom Festival not only serve to promote the Libertarian mindset, but also create conversation that Free State Project president Carla Gericke says is of the utmost importance to the group’s goals.

“We are striving to live as free as possible,” Gericke said. “With freedom comes great responsibility. Sometimes, when I think about the movement, it’s almost like a form of localization on steroids.”

Gericke believes the Free State Project is attractive to people because the idea of collecting Libertarians to make a difference in government is a practical one. She added that, since her election as Free State Project president in 2011—three years after her own move to New Hampshire—she has been less focused on getting signatures on the statement of intent.

“Some of my focus has actually moved toward attracting people to move,” she said. “It’s great that they signed the pledge, but in terms of things on the ground, the more bodies we have here, the more we can actually accomplish.”

Nashua Telegraph:

The forum, in its fifth year, is the annual meeting for the New Hampshire Free State Project. Free Staters already living in New Hampshire and those thinking about moving here make up most of the participants, but everyone is invited, said Chris Lawless, a Hopkinton resident and the Free State Project’s forum organizer.

“We want people to come meet us, see we don’t have horns growing out of our heads,” Lawless said.

Nashua Telegraph #2:

Freedom to live as one chooses is a powerful ideal, and a conference exploring the concept was worth the drive from New Jersey for Marcus Connor, 37.

“Liberty is dying every day in the United States,” Connor said.

The government is killing it, he said.

That view was espoused in speeches throughout the morning. It was the drumbeat that would sound throughout the various programs of the forum.

One of the day’s first speakers, John Bush, talked of the need to abandon the U.S. Constitution, which he said was written to protect the interests of the nation’s founding fathers, who were “the privileged elite at the time.”

Bush represented Agora 21, described as “a counter-economic approach to building a free society in the 21st century.”

Bush acknowledged the Constitution marked civilization’s best achievement toward limiting government, but added, “I think we can do better. I think we can do much better.”

Patch.com:

Keynote speaker Friday is economist Peter Schiff, CEO of Connecticut-based Euro Pacific Capital Inc., who will talk about the current economic business cycle (a sham), what mistakes have been made (too many to count), what to expect next (something worse than the last collapse), and what you can do to prepare (buy gold, vote for Ron Paul, invest in foreign currency).

As you may have guessed, if you’re looking for someone to paint a rosy picture of the country’s gradual economic recovery since 2008, Schiff is not your guy.

“The future is bleak,” said Schiff in a recent phone interview with Nashua Patch.

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NYS Supreme Court Judicially Amends the State Constitution

The New York Constitution prohibits pork-barrel spending and corporate welfare: government money for private projects. Here’s what the clause says:

[T]he money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking.

Couldn’t be clearer, right?

Wrong. The state supreme court today ruled – in a split decision – that this constitutional provision is unenforceable. The state can give money to whomever it wants so long as it is not “patently illegal” to do so.

In dissent, Judge Robert Smith wrote:

I have defended before, and will no doubt defend again, the right of elected legislators to commit folly if they choose. But when our Legislature commits the precise folly that a provision of our Constitution was written to prevent, and this court responds by judicially repealing the constitutional provision, I think I am entitled to be annoyed.

Indeed.

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“A decade ago, libertarian activists… hatched a crazy plan to take over New Hampshire… It’s kind of working.”

That’s from the lede of a new story in Mother Jones about the Free State Project, entitled “City on a Quill.” Mother Jones is definitely coming from the left, but the story is meritoriously free of those lazy, paranoid arguments ad Kochum that we’ve seen about Free Staters from The Nation (no, I’m not going to provide a link, they don’t deserve it). The Mother Jones story doesn’t appear to be online yet. With just a touch of ironic deprecation, the story elaborates accurately the main factional divide among libertarian activists in New Hampshire, between civil-disobedience activists mainly living in Keene and political activists spread throughout the state:

In recent years, Keene residents have been cited for violating the city’s open-container law (during a city council meeting), for indecent exposure and firearms possession (simultaneously), and for smoking marijuana (inside a police station). These incidents share a common root: They were orchestrated by members of the Free State Project–a plan, hatched in 2001, to get 20,000 libertarian activists to quit their jobs, sell their homes, and relocate to New Hampshire en masse.

The reporter also interviewed Free Staters who’d been elected to the legislature:

Dan and Carol McGuire relocated to New Hampshire from Washington state in 2005… Political novices, they both won seats in the House of Representatives (Carol in 2008, Dan in 2010).

They’ve taken different approaches to fighting tyranny. Carol’s goal for the 2011 session was culling anachronistic laws that have remained on the books through bureaucratic neglect. She succeeded in axing an 1895 statute, the result of lobbying by Big Butter, that requires margarine to be served in triangular containers so that diners don’t confuse it with the real thing. Dan had his sights on something of potentially much greater consequence. He and a few allies succeeded in passing a bill to eliminate the New Hampshire Rail Transit Authority, which is planning a high-speed line to Massachusetts. Their argument was simple: Government shouldn’t be in the business of building railroads. The state’s Democratic governor, John Lynch, vetoed the bill.

After summing up the disagreements among Free Staters on strategy and end goals (no government versus limited government), reporter Tim Murphy concludes: “And therein lies the problem with attempting to create a libertarian utopia: No one–least of all libertarians–can agree on what it looks like.” You might say that’s a problem for any effort to create a utopia.

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