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September 2014 Policy Study, Number 14-4


A Citizens Introduction to Federalism: Federalism and the Future of Constitutional Government


Part VI: Can Federalism Be Restored?



Cooperative federalism also tries to undermine competitive federalism. “Uncompetitive states learned to use the federal machinery as a cudgel to eliminate the advantages of competitive states,” argued Loyola.[262]  In this case competition is seen as a threat:


That leaves heavily regulated and highly taxed states at a disadvantage in the competition for people and businesses. Those states have cleverly solved much of their problem by using the federal government to impose higher taxes and regulation across the states. Burdened by often-costly progressive policies, states such as California, Massachusetts, and New York form coalitions in Congress to neutralize the advantage of states like Wyoming, Texas, and Florida. Protection from competition is the strongest impetus for the integration of federal and state governments under an umbrella of overall federal control.[263]


Richard A. Epstein and Mario Loyola describe the coercion that the federal government uses against the states:


But if a state rejects Medicaid and decides to establish its own program for the needy, there is a huge penalty: It loses its share of Medicaid funds, but its citizens still have to pay Medicaid taxes, meaning state residents end up paying twice for the same services. That means less money for schools and roads and other things they need.[264]


Richard E. Wagner, a noted economist and Chairman of Public Interest Institute’s Academic Board, argues that the “American system was founded on the principle that competition among governments is the appropriate institutional complement to the individual liberty on which the nation was founded.”[265]  Competitive federalism would also restore the states acting more as “laboratories of democracy,” and as Matt Mayer argues, “a robust policy competition among the states will enable America to find out what works and what does not.”[266] As Epstein and Loyola stated:


A common justification for federal overreach is that it allows for administrative convenience, but the Constitution doesn’t exist for the convenience of the government. Its purpose is to protect the people from government abuse. By leaving most government spending and regulation within the exclusive domain of states, the original Constitution created a dynamic framework of interstate regulatory competition. Citizens and businesses could choose to live in whatever state they wanted, a choice they could make with increasing ease as the nation’s communications and transportation dramatically improved, and states competed to offer an attractive package of services and taxation.[267]


Matt Mayer argues that “the issues ripest for applying our concept of competitive federalism are Medicaid, education, and transportation.”[268] These three policy areas “are typically among the largest parts of state and local budgets.”[269] Applying competitive federalism to these policy areas means returning decision-making back to the states. In replacing the federal government’s role in these policy areas, Mayer proposes:


Competitive federalism requires a cut in federal taxes and an end to grants, tax transfers, and other inefficient tax schemes. With full control over other issues, states, as [Alexander] Hamilton recognized, must retain the tax dollars of their residents so they directly can fund the programs. No more will citizens of one state be forced to subsidize the domestic policy decisions of other states. Equally important, states will no longer be incented to provide goods or services they can’t fund or delay reforming their programs.[270] 


By allowing states to keep those tax dollars it will not only dismantle some of the federal bureaucracy, but also state bureaucracy. “Governors and state Legislatures then will have to decide how high to raise their taxes to fund the three programs,” stated Mayer.[271] Mayer argues that:


By returning programmatic and taxing power over these issues to the states, we will empower state elected officials to experiment and identify solutions that best serve the unique needs of their citizens. The best solutions can serve as models for other states, allowing for differences based on demographic nuances…Each state can decide how generously to fund programs. With state taxes becoming a far larger amount of each paycheck, we will have true competition among the states.[272] 


Mayer also argues that keeping Medicaid, education, and transportation as state responsibilities will bring more transparency and accountability to government, because “state politicians will get more control over their programs and budgets and citizens will gain as vulnerable populations receive better goods and services at lower costs to taxpayers.”[273]  Competitive federalism, as Mayer argues, will allow both the states and the people to take more responsibility in making “fundamental decisions on what government goods and services they want, how they want those goods and services delivered, and what price are they willing to pay for those goods and services.”[274]


Competitive federalism will also help resolve the national fiscal crisis, which is due to the continual out-of-control spending by both political parties. Under competitive federalism, the “shift of power and money from the federal government back to the states is the only way out of our fiscal crisis short of massive tax increases and painful government cuts,” argues Mayer.[275] Both Wagner and Mayer also argue that competitive federalism is the constitutional solution, because as Mayer stated:


Our written Constitution purposefully promoted a competitive federalism by limiting the powers of the federal government and reserving remaining powers to the states to the degree we the people ceded other powers to our state governments via state constitutions. By so doing, our Founding Fathers guaranteed the states would serve as laboratories of competition within the contours of the Commerce Clause in Article I, Section 8.[276]


Another possible solution to restore traditional federalism was a proposal offered by Senator Lamar Alexander (R-Tenn), who “proposed a grand ‘swap’: nationalize Medicaid, and, in return, wipe out all federal education funding and attached strings.”[277] This is something similar to what President Reagan proposed by offering to “nationalize Medicaid, while giving all Aid to Families with Dependent Children — including all funding responsibility — to the states.”[278]


James L. Buckley, former Senator from New York and federal judge, in his book Freedom at Risk: Reflections on Politics, Liberty, and the State, offers a similar idea:


My proposed reform, therefore, would retain federal responsibility for the health of the environment, but it would shutter the Department of Education. The weeding out of unwarranted federal programs, of course, can’t be accomplished overnight. Phasing out the myriad grants-in-aid programs, for example, will take time because of commitments that state and local governments have been required to make in order to qualify for federal dollars. This must be done, however, if we are to restore to state and local governments the autonomy and authority they need to deal with their own responsibilities in their own ways, and if we are to free the federal government to concentrate on concerns that require attention at the national level.[279]


Buckley also brings into the discussion the realistic point that it will be extremely difficult to return to limited government:


I am not such a romantic as to believe that we can return to the division of governmental labors that obtained even fifty years ago. Too many federal programs are too deeply imbedded in our society, and too many institutional adjustments have been made to accommodate them. What we can do is consciously establish strict standards for the adoption of new federal initiatives, standards based on the spirit if not the letter of the Constitution. In the first instance, we must call a halt to all new grants-in-aid programs and then see which of the existing ones we can pare away.[280]


Barry Goldwater offered a solution that is applicable to today when he argued that “we might provide, for example, for a 10 percent spending reduction each year in all fields in which federal participation is undesirable.”[281]  Many conservatives and libertarians suggest that a revival of the Tenth Amendment is needed, as Mario Loyola wrote:


The struggle to save the Constitution is not a question of states rolling back federal power. It is one of rescuing individual liberty from a conspiracy of federal and state officials whose highest priority is often to satisfy special interests. If the fight to reclaim our Constitution has any chance of attaining its epic objectives, its mission must be to destroy the twin towers of the progressive movement — cooperative federalism and the cartel state. In a word, its mission must be to revive the Tenth Amendment.[282]


Focusing on reviving the Tenth Amendment is a good solution, but conservatives and libertarians must be careful not to fall back on the states’ rights philosophy of Nullification, which was argued during the antebellum era. This philosophy is contrary to the intent of the Founding Fathers. Restoring federalism will also require at least one of the major political parties be committed to restoring limited government. The Republican Party, which tends or is supposed to be the conservative party, needs to reject the compassionate and big-government conservatism of the Bush era, and return to the principles of Goldwater and Reagan.


The Supreme Court also has a role to play in restoring federalism. Richard A. Epstein and Mario Loyola argue that “the key task is for the Supreme Court to start undoing the major mistakes that started with the Progressive era a century ago.”[283] The Supreme Court has a responsibility to protect the Constitution, and although judicial activism is seen as bad — which it can be — it is also good if it is exercised appropriately. An example of this would be the conservatives on the Supreme Court who were accused of being judicial activists by Roosevelt, but were actually defending the Constitution by upholding constitutional principles such as economic liberty, property rights, separation of powers, and limited government/federalism.

Restoring federalism is also a cultural problem, just as Buckley argued. This brief history of federalism demonstrates that over time the size of the federal government gradually increased, but it was the Progressive Era and the New Deal which truly transformed American government from one of limited powers to the leviathan that we have today. The administrative/regulatory and welfare state we have today also owes its creation to the Progressive Era, and both the New Deal and Great Society wedded the American people to an entitlement state. Recent elections demonstrate that the American people do not wish to abandon the current federal leviathan as demonstrated by President Obama’s reelection in 2012 even with a poor economy and high unemployment.


The same is true for entitlements. “That Americans believe they have a right to promised Social Security benefits is understandable, because they have been required to pay into the system throughout their working lives,” noted Buckley.[284] Buckley is correct, but the American people must come to terms that reforms are needed to Social Security and Medicare, otherwise these programs will not be available to younger generations and the cost will bankrupt the nation. Buckley also correctly pointed out that too many Americans expect too much from government. “But too many are beginning to believe they have a right to have a government provide a buffer against the vicissitudes of life that earlier generations believed it was their own responsibility to cope with,” argued Buckley.[285] 


This is the problem confronting the socialist welfare states of Europe, which are facing significant financial problems because they can no longer pay for the expensive welfare programs. The result is the images on television of many protesting in the streets demanding their benefits from the government. In the United States, after adding record amounts to the national debt, President Obama “proudly” declared the era of austerity over. “We won’t be able to bring our expanding administrative state under control and avoid national bankruptcy until the American people insist that we do so,” stated Buckley.[286] As Buckley wrote:


But it will take more than a return to federalism to safeguard our individual freedoms. In the first and last analysis, this requires that our people continue to prize their liberties, continue to assume responsibility for their own well-being, continue to understand that a more limited, frugal government is in the public interest as well as their own…This requires that our citizens rediscover that the price of cradle-to-grave security is the ultimate erosion of their freedoms. This is the hard lesson that history has to teach.[287]


Gordon Lloyd and David Davenport make a very serious point in defense of civic education, because America is facing a serious crisis, in fact a tragedy, in regard to the basic knowledge of history and government:


In fact, it would behoove conservatives to be ever more active in civic education efforts, since constitutional principles have become another of those abstractions that many citizens fail to appreciate…The problem with the Constitution is not what it says; it’s that people don’t know what it says and fail to appreciate its meaning and value.[288]


It is difficult to make the case for constitutional government when many people do not even have a basic understanding of the Constitution. Unfortunately, education, especially in the areas of history and government, is under attack from progressive academics and various ideologies. In addition the belief that history and government are not important enough to be required classes is rampant, especially in higher education. 


In 1988, President Ronald Reagan in remarks to the National Governor’s Association stated:


I can’t help thinking that, while much of the 20th Century saw the rise of the federal government, the 21st Century will be the century of the states. I have always believed that America is strongest and freest and happiest when it is truest to the wisdom of its Founders.[289] 


President Reagan was famous for his optimism, but perhaps even though the federal government has grown even bigger and stronger since his time in office, the American people will repent of progressivism and rediscover the principles of the American Founding. We must remember what Barry Goldwater said in defense of conservatism:


Circumstances do change. So do the problems that are shaped by circumstances. But the principles that govern the solution to problems do not. To suggest that the Conservative philosophy is out of date is akin to saying that the Golden Rule, or the Ten Commandments or Aristotle’s Politics are out of date. The conservative approach is nothing more than an attempt to apply the wisdom and experience and the revealed truths of the past to the problems of today. The challenge is not to find new or different truths, but to learn how to apply established truths to the problems of the contemporary world.[290] 


Federalism is an established truth of the American Founding and part of the wisdom of the Founding Fathers, and it must be restored properly if we are going to solve the complex public policy problems facing the nation today, but it will also require a renewed spirit of constitutionalism in the United States.




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