New Yorker: Edit Bill of Rights to Stimulate Economy
"Federalism," writes The New Yorker's Financial Page columnist James Surowiecki, "often described as one of the great strengths of the American system, has become a serious impediment to reversing the downturn." The Wisdom of Crowds author argues that state balanced-budget rules make for pro-cyclical rather than countercyclical fiscal policy: States cut spending (or, more accurately, slow its rate of increase) just when many other sources of pocket change are also drying up. "In the midst of this downturn, some of the biggest players in the economy–state and local governments together account for about thirteen per cent of G.D.P.–will be doing precisely the wrong thing," Surowiecki says.
We have now seen 18 months of Federal supports, bailouts, loans, nationalizations, used-car purchases and other forms of spending-based stimulus, yet GDP in this period has declined nearly 2 percent. Nevertheless I'll accept for the sake of argument the Keynesian assumption that countercyclical spending actually strengthens the economy. (Keynesians can always argue that things would have been worse if the government had done nothing.)
Instead, let's focus on the constitutional argument. It's true all states but this French-sounding place called Vermont have either constitutional or statutory language requiring balanced budgets. But as this study by the National Conference of State Legislatures explains, those requirements vary widely. Statewide deficit spending is not nearly as constrained as Surowiecki claims. Many states are allowed to carry over budget deficits from year to year, a practice that may obviate the balanced budget requirement itself. U.C. Davis economist Steven M. Sheffrin argues [pdf] that "balanced budget rules matter, but only for the states with the strictest 'no-carry-over' balanced budget provisions."
Partly because states have widely varying levels of balanced-budget strictness, it's also hard to assess how much of a difference countercyclical spending makes. (Study from CalState Northridge [pdf].) But Surowiecki's critique of state autonomy goes beyond balanced budgets to include discretionary spending (which he believes is too charitable to rural areas) and NIMBYism (which may prevent T. Boone Pickens' "wind power grid" swindle from becoming reality). That is, his real complaint isn't with state constitutions but with the U.S. Constitution, which guarantees the states any authority at all.
By pretty broad consensus, the 10th Amendment, which reserves non-delegated governmental powers to the states, has been interpreted with increasing narrowness almost since the beginning of the republic. Advocates might be surprised by the claim that state governments have too much leeway. But the biggest obstacle to the "genuinely national government" Surowiecki wants is right there in the Bill of Rights.
If the problem is that state governments can't run up spending the way the Federal government does, however, you need to fix another part of the Constitution: Article 1, Section 10. The difference between Federal and state spending isn't ideological but structural: Washington D.C. can create its own money; Topeka can't. If you want states to spend as drunkenly as the Federal government, just give them the power to coin money and emit bills of credit.
