Federal preemption is one of those issues that is very hard for those of us who aren’t steeped in legal-constitutional matters to understand. I’m sure I don’t understand it as well as I should, and I’d recommend that you turn to Richard Epstein and Michael Greve if you’d like to really get it. Here is their shorthand:
On one side, consumer advocates, plaintiffs’ attorneys, and state officials argue that broad federal preemption claims interfere with the states’ historic police power to protect their citizens against corporate misconduct. On the other side, corporations and federal agencies maintain that preemption is a vital safeguard against unwarranted and inconsistent state interferences with the national economy and against aggressive trial lawyers and attorneys general.
During the debate over a CFPA, many on the left have suggested that conservatives are hypocrites for believing that new federal regulations should preempt state regulations. “But don’t you support federalism! Clearly you don’t really support it when your corporate overlords blow their whistle!”
Well, competitive federalism isn’t primarily about allowing the states to do whatever they’d like. Rather, it is about carving out different roles for the state and federal governments, so that states can compete in meaningful ways. General revenue sharing, for example, undermines competitive federalism: the more we redistribute from one set of states to another, the more we weaken incentives for states to enhance their own revenues through growth-friendly policies. This doesn’t mean that there is no place for general revenue sharing — just that it doesn’t serve the goals of competitive federalism. Medicaid is a perfect example of a program that creates misaligned incentives: states set eligibility rules, but the federal government pays most of the tab. The result is that the states have a powerful incentive to ratchet up spending. The ACA will exacerbate these problems; the legislation expands eligibility, yet it doesn’t unify the program, which will virtually double in size. The incentives remain misaligned.
One can see why advocates of a CFPA want to allow the states to layer their own regulations on top of a new federal regulatory regime: if Texas, for example, has tougher consumer financial protections, well, that’s all to the good from their perspective. But of course this makes life more difficult for national firms, and it could also stifle competition. A believer in competitive federalism would say, well, we can either regulate at the state level and the success of Texas’s consumer protections will lead other states to adopt them. Or we can embrace a national standard, and hope one size really does fit all. This lends clarity and stability of expectations to the regime of consumer financial protection.
Interestingly, one of the best cases I’ve read for preemption comes from Brad Plumer, an advocate of carbon pricing:
If there’s a federal cap-and-trade system, then it doesn’t make a ton of sense to let some states set up stricter targets—all that does is allow slacker states to slack off even more, and overall pollution levels will remain the same. On the other hand, there are some areas where it makes sense to let states forge ahead of Congress. If an individual state wants to tighten its building codes, or build more renewable power over and beyond whatever the federal standard calls for, or tackle emissions not covered by the cap-and-trade program (like agriculture), then those states should be able to do so, since those things aren’t really zero-sum games.
Basically, Brad is saying that the states and the federal government shouldn’t regulate the same things. I’m guessing Brad won’t like where I’ve taken his analysis, but I blame him for offering a persuasive and clear explanation of a complex idea.