Politics & Policy

An Inverted System

From the March 19, 2012, issue of NR.

The Founders of this country, according to lore, created a system in which federal and state power balanced each other. During the New Deal, however, the Supreme Court stopped maintaining that balance. In Wickard v. Filburn (1942), the Court allowed the federal government to shove the states aside to regulate purely intrastate activity (specifically, to tell a farmer to stop growing wheat to feed his cattle). Since that time, the federal government has seized more and more power at the expense of the states. In recent years, however, the Court has tried to move back toward the Founders’ view of the rights and dignity of the states.

Michael S. Greve, a scholar at the American Enterprise Institute, has written The Upside-Down Constitution to tell you that all of the above is wrong. “Balance” is precisely the wrong way to look at the constitutional allocation of responsibilities, implying as it does that the state usurpation of a federal power could somehow compensate for the federal usurpation of a state power. The Constitution established a division rather than a balance of powers, and it did so not to protect the interests of the states but to safeguard accountability and competition (although the Founders did not use those exact words).

Thus, under the Constitution, the federal government exercises its limited powers by acting directly on people rather than through the states. That way, if a governmental function is performed badly, one level of government may be held responsible: The federal government cannot blame states’ foot-dragging while the states blame poor federal leadership.

For an example of the Constitution’s protection of competition and commerce, consider its limits on states’ taxing powers. Several provisions of the Constitution block state governments from taxing economic activity outside their borders. The Constitution does not harmonize tax rates among states (something many modern constitutions do for subnational units of government). And it forbids states to enter a compact to harmonize their rates without congressional approval. So people and businesses can move to low-tax states; states must therefore compete with one another for residents; and that competition produces favorable conditions for the growth of commerce.

Almost any other set of arrangements would have done more to serve the interests and dignity of state officials. But those considerations count for nothing in the constitutional design, which subordinates the concerns of the states to the public welfare. Madison is, as Greve comments, “uncharacteristically impassioned” on this point in The Federalist. Far from romanticizing state governments, all three authors generally treat them as rapacious, short-sighted, and faction-ridden.

Greve persuasively outlines the theory that underlay our competitive constitutional order, the provisions of the written document that contributed to it, the legal doctrines that elaborated it, and the political economy that protected it. Hamilton assumed (and hoped) that business interests would go to federal court to stop state schemes to exploit or frustrate national commerce. So it proved. From John Marshall onward, the Supreme Court developed in its business cases a law that made the commercial Constitution work by limiting the depredations of state governments while being careful not to generate a backlash that would threaten the whole project.

Chief among the Court’s stratagems was its deployment of what has come to be known as the “dormant” or “negative” commerce clause: the inference that since the Constitution vests Congress with the power to regulate commerce among the states, it denies that power to states. That inference has long been controversial, not least among originalists, but Greve points out that without it the states would have at hand a ready means to circumvent the specific prohibitions on them that the Constitution spells out.

The federal courts also developed a federal common law so that a plaintiff suing an out-of-state corporation would not have the advantage of state legal rules that might be biased in his favor. The key decision here, Swift v. Tyson (1842), was unanimous, notwithstanding the notoriously broad spectrum of opinion on nationalism during the era.

Sectional divisions in American politics, and the Gilded Age Republican party, made the Court’s task easier by preventing congressional action to undo the courts’ work and augment the power of the states. Greve does not suppose that these circumstances could have lasted forever, but notes that the erosion, collapse, and replacement of this competitive order all happened with the connivance of the states. It was private litigants, especially businesses, who defended the old constitutional order from the New Deal; not the states.

For Greve, the key New Deal case is not Wickard but Erie Railroad Co. v. Tompkins (1938), which declared the federal common law of Swift and its progeny unconstitutional. Under the new regime, the federal courts would extend extreme deference to state courts and state law in suits concerning interstate commerce. The default rule was in effect reversed: Now it would take an affirmative act of Congress to protect that commerce from state-level factionalism. Such action has rarely been forthcoming. The new regime could hardly be better designed to produce a litigation explosion, which is why we have had one. The most pro-plaintiff jurisdictions can now effectively create a national legal standard.

Wickard itself is misunderstood. Greve observes that Parker v. Brown (1943), argued at the same time, upheld California’s program to cartelize its raisin growers to extract rents from the rest of the country. The two cases have opposite logics. Since California’s scheme regulated in-state production, Parker treated it as irrelevant to interstate commerce; but Wickard treated in-state production as subject to congressional regulation because it affected interstate commerce. Beneath the apparent contradiction is a common impulse: to allow cartelizing actions by either the federal government (in Wickard) or state governments (in Parker).

At the same time, cooperation replaced competition in fiscal matters. The best example of this phenomenon, though it postdates the New Deal, may be Medicaid, a joint federal-state program. States may expand benefit levels and eligibility criteria, subject to federal restrictions, while the federal government provides roughly half the funds. State governments that do not wish to participate are forfeiting their citizens’ federal tax payments to other states, so nobody refuses. Benefits expand because state officials may confer them without imposing an equal amount of taxes on the voters who elect them, half the cost being paid by taxpayers elsewhere. During budget crunches, for the same reason, states reap only half the savings from each benefit cut.

Greve theorizes that the New Dealers involved state governments in these spending programs, notwithstanding the obvious inefficiency of the arrangement, as a response to the weakness of the coalition for redistribution in national politics (the same weakness that Madison celebrated in his remarks about the “extended republic”). If that coalition managed to create pilot programs in a few states, it could then agitate for federal help. Even people within the state who had opposed the program initially might join that agitation to reduce their own costs. In later decades, the federal courts would strengthen redistributive coalitions even further by granting them the right to sue under vaguely worded statutes to force state agencies to expand entitlements; in many cases, the agencies have been happy to be forced.

These cooperative arrangements generate more spending than a program run entirely by the federal government or the states would produce. Over the last five decades, federal tax revenue has tended to stay flat as a proportion of the economy, while state and local revenue has climbed up and up. Government has been growing at its lower levels, with federal help. Other results of cooperative federalism include persistent conflicts in which the states demand more “flexibility” in spending federal dollars; a pervasive sense that the programs are beyond any government’s control; and recurrent demands, increasingly met, for federal bailouts of states.

Instead of enforcing the structural limits on state governments, the Supreme Court turned to vindicating various constitutional rights — many of them previously unimagined — against the states. Instead of being disciplined by competition, states’ political choices would be constrained by the justices themselves. The Constitution was thus inverted. States could no longer adopt their own policies with respect to abortion, but their attorneys general could regulate commercial activity nationwide. Faction was no longer to be feared, as in the old Constitution, but to be empowered to produce robust local experimentation. (This was the real point of Justice Brandeis’s famous paean to the states as “laboratories of democracy.”) Where the old Constitution made a virtue of its fixity, the new one celebrated its mutability as a way of responding to the ever-changing necessities of history.

Instead of a federal government limited to its enumerated powers but supreme in their exercise, we now have a government of unlimited powers that must be exercised concurrently with the states. The federal government may attempt to regulate commerce in pharmaceuticals by setting labeling standards that balance the risk of nasty side-effects against the good the medicines can do. But the Supreme Court says that states may undo that balance by piling on their own additional standards, with drugmakers subject to all of them — and all of their judges and juries, who may be making them up on the fly.

Greve is not a merchant of hope. Recent attempts by conservatives to revive federalism in both the legal and political arenas have often shared New Deal assumptions — with justices seeking to protect the dignity of state governments, and legislators trying to give them more control over federal money. Originalists have sometimes even trained their fire on those remnants of the pro-competitive constitutional order that the New Deal left standing, such as the dormant commerce clause, out of a misguided fear of drawing inferences from the structural logic of the Constitution.

If there is to be a recovery of the Constitution’s federalism, it will involve a retreat by the federal courts from the culture wars and, simultaneously, a renewed commitment by them to policing the boundaries of state authority over national commerce. A precondition for any such recovery is the conservative intellectual reorientation that Greve is attempting to advance. Thoughtful conservatives understand, as he notes, that the free market is not the same thing as “the opportunistic demands of the Fortune 500.” They ought to begin distinguishing as well between federalism and the desires of state governments.

 — Ramesh Ponnuru is a senior editor of National Review. This article appears in the March 19, 2012, issue of National Review.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.


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