The Problem With Federalism
JAMES SUROWIECKI brings some detail and current perspective to a point that RICHARD LONGWORTH makes in his book about globalization in the Midwest, Caught in the Middle. Both writers argue that states get in the way of national growth by performing inefficiently and by catering to rural interests.
LONGWORTH, for his part, believes that many small towns and rural areas will be unable to compete in the global future and should be left to shrink or find their own way. Political representation that rural areas have in state governments prevent this from happening.
SUROWIECKI says:
It’s easy enough, of course, to mock state governments nowadays, what with California issuing I.O.U.s to pay its bills and New York’s statehouse becoming the site of palace coups and senatorial sit-ins. But the real problem isn’t the fecklessness of local politicians. It’s the ordinary way in which state governments go about their business. Think about the $787-billion federal stimulus package. It’s built on the idea that during serious economic downturns the government can use spending increases and tax cuts to counteract the effects of consumers who are cutting back on spending and businesses that are cutting back on investment. So fiscal policy at the national level is countercyclical: as the economy shrinks, government expands. At the state level, though, the opposite is happening. Nearly every state government is required to balance its budget. When times are bad, jobs vanish, sales plummet, investment declines, and tax revenues fall precipitously—in New York, for instance, state revenues in April and May were down thirty-six per cent from a year earlier. So states have to raise taxes or cut spending, or both, and that’s precisely what they’re doing: states from New Jersey to Oregon have raised taxes in the past year, while significant budget cuts have become routine and are likely to get only deeper in the year ahead. The states’ fiscal policy, then, is procyclical: it’s amplifying the effects of the downturn, instead of mitigating them. Even as the federal government is pouring money into the economy, state governments are effectively taking it out. It’s a push-me, pull-you approach to fighting the recession.
LONGWORTH:
The result is states seem to go out of their way to make things worse…State governments help finance local infrastructure and dictate, from miles away, how that money is spent. State priorities on education and workforce programs leave city residents incompetent to deal with the global job market. Highway funds go to rual areas, not to cities that need them more: job creation money goes to wealthy areas, not to the core of battered cities.
The fact that a recent survey listed Illinois as only the thirdmost dysfunctional state says something. Years of atrophy in the state’s bureaucracy has left it far from being the “laboratory of democracy” that Franklin Roosevelt utilized in the New Deal.
The long-term question is: are states more part of the problems we face than the solution?
hat tip: James Kwak, baselinescenario.com