Federalism

What it Means and Why it’s Important

It would be understandable if you thought I would write about the kerfuffle in Venezuela for this edition of Fuel for the Free Mind, since there is a lot to unpack there. But my purpose here is not to address headlines, but rather to use the lens of freedom to address everyday issues in governance and society. Besides, I need more time to consider all of the arguments on both sides of the Venezuela issue. So today we go with what I had already prepared, a discussion of the concept of federalism. Federalism only occasionally makes it to the headlines, but it should always be a consideration in governance.

Federalism is the concept that some political entities (states, in the American case) agree that certain powers are given to a central (federal) government and others are retained by the states. This is one of the ideas baked into the design of our government in order to prevent tyranny. Like checks and balances between the executive, legislative, and judicial branches in the federal government, but applied to the larger scale of the states and their relationship to the federal government. To add clarity to the Constitutional design, the tenth amendment to the Constitution states that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Among the powers constitutionally reserved to the states are education, healthcare, roads, and most legal and criminal matters, among others. Right away you can see that regardless of the text of the Constitution, in practice the federal government has wormed its way into many of the areas traditionally reserved to the states.

Why is federalism important? The authors of the Constitution were concerned about tyranny. And rightly so, having just fought the Revolutionary War. But there are a number of other reasons to favor a federal system of government. First, local management is more responsive to local preferences and avoids one-size-fits-all solutions. Also, local services are more efficient, generally avoiding the large-scale waste and fraud typically found in programs run out of Washington, DC (here’s looking at you, Minnesota). Another feature is the promotion of “laboratories of democracy,” the idea that states should be free to try out novel social and economic experiments without risk to the whole country. Good ideas spread; bad ones die. Another way of stating this is that federalism reduces the damage done by bad ideas. California, for example, is experimenting with the provision of free healthcare to illegal immigrants. (This is done through Medicaid, which is administered by the state but mostly funded by the federal government. It is unlikely that CA would have done the experiment if they had to pay for all of it.) It turns out that the experiment is blowing up the budget and the state is backing off. But no other state had to participate in the experiment and decide whether to fund healthcare for illegal immigrants or public education. We all get to learn from the CA experiment.

So, what is the state of federalism today? Unfortunately, like many other Constitutional principles, it has been eroded by decades of neglect. There is an interesting dynamic and historical context here. The founders, in setting up a federal system of government, assumed that the states would fiercely defend their prerogatives. Such an assumption is laughable today. Why? Money. States are required to balance their budgets. The federal government is not. State and local governments accept federal intervention in state affairs because that federal intervention comes with money attached. But that money always comes with conditions. By allowing states to provide more services today and transferring the cost to future generations through federal debt, state politicians use your grandchildren’s money to buy votes today. And we lose local control in the process.

A couple of illustrative points:

1. Federal funds today account for at least one third of state revenues, and almost half of public welfare payments. North Carolina’s most recent budget shows that over 40% of state revenue is federal funds. All of this money has strings attached. The federal government has no constitutional role in healthcare, but funds 90% of the cost of Medicaid – until it decides not to. States have no incentive to police fraud or limit enrollment (they are mostly wasting federal money and there are votes to be won), and the federal government has never been able to effectively prevent fraud.

2. Federal funds account for 13.6% of public funding for K-12 education, and a much greater proportion of postsecondary education (but some of this goes toward research, not instruction). There is no constitutional role for the federal government in education, but with the Dept. of Education handing out grants like candy at Halloween, states do not fight the strings that are attached. Yet educational attainment among K-12 students is essentially flat since the establishment of the Dept. of Education in 1979. At colleges and universities, the DOE gave us policies that promoted woke over education and stripped males of due process rights when facing sexual assault charges.

In short, there is no evidence that federal intrusion into these areas has been beneficial to the country, and plenty of evidence that it has harmed us. But states will not refuse money that other states will gladly accept. In both examples cited above, we see the pathologies that result from violations of the principle of constitutional federalism. Meanwhile, these services, now dominated by the federal government, continue to deteriorate in quality and lead us to financial ruin.

The lesson is the same as we see again and again. A nation that was “conceived in liberty” with a federal structure, departs from it at its own risk. This will not end well.