Small-government types have often debated whether the 17th Amendment to the U.S. Constitution, establishing direct election of senators, is in part responsible for the decline of federalism in the U.S. I have long been skeptical of the 17th Amendment repeal movement, because Germany has a system in which states (Länder) elect senators (members of the Bundesrat), and Germany has within a few decades moved from a stronger system of federalism than the U.S. enjoys to a much weaker federalism than the U.S. enjoys. I’ve recently been reading Fiscal Decentralization and the Challenge of Hard Budget Constraints, edited by Jonathan Rodden, Gunnar Eskeland, and Jennie Litvack, and it turns out this arrangement or something like it is more common than I realized — and with even worse consequences.
First, here is Rodden on Germany (p. 174):
Most German pundits believe that Land-level elections are primarily referenda on the popularity of the federal chancellor and his government rather than independent assessments of the performance of Land-level politicians. This supposition is borne out by empirical analysis of election returns. The reelection chances of Land-level politicians are strongly affected by the success of their partisan colleagues at the Bund level. This is not surprising, since the Bundesrat possesses the power to veto, delay, or rewrite most federal legislation, and Land elections determine the makeup of the Bundesrat. As a result, the media, voters, and Land politicians themselves have come to interpret Land elections as something like nonsimultaneous midterm federal elections (Abromeit 1982).
Thus, a pre-17th Amendment system undermines the autonomy and accountability of state governments to voters and their incentives to do a good job. Indeed, it federalizes state politics.
Here is Rodden on Brazil (p. 235):
The most important roadblock to satisfactory debt renegotiation and reform has been the Senate. Governors have pushed hard collectively for the principle that all state debt negotiations should take place in the Senate. Each state has three Senate seats, which means that the major debtor states control only twelve of the eighty-one seats. Instead of coalescing against the minority debtor states, however, the senators from the other states took advantage of the situation and demanded proportionate benefits for their own states in exchange for their votes to protect the interests of the largest debtors… Given the weakness of party discipline in Brazil, the president was unable to use national partisan ties to convince representatives to favor a national agenda over their regional interests.
While senators are directly elected in Brazil, they are mostly former governors and operate state-level political machines that propel them into federal office. Thus, state governments have great influence on the federal government, and this influence is actually harmful to federalism and well-designed decentralization, not to mention liberty and fiscal health. Bankrupt states have repeatedly run up debt and forced the federal government to bail them out. The ultimate consequence of this dire equilibrium was a federal effort to minutely regulate state finances.
Prior to 1994, Argentine senators were indirectly elected by the provinces. Between the fall of the military regime in 1983 and the 1990, Argentine provinces ran up huge debts, running state banks to monetize the debt and facilitating hyperinflation (Webb, p. 191). Moreover, the federal government assumed greater and greater powers over the provinces by giving them transfers from the federal budget.
In short, state legislative election of senators in the U.S. seems unlikely to have stopped federal control of the states through federal grants in the 20th century and probably would have further nationalized state legislative elections, to the detriment of democratic accountability at the state level. It might even have helped create bailout expectations, leading states to run up government spending and debt. Those of us who favor liberty, fiscal soundness, and a strong, well-designed federal system should support the 17th Amendment.