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The Regulatory Costs of Abandoned Federalism

"Over the years, successive Congresses and an accommodating Supreme Court have emasculated federalism to the point where there is virtually no exercise of federal power that the Court will deem unconstitutional."

—Judge and former U.S. Senator James L. Buckley, Saving Congress from Itself

(Note: This capsule is part of a series on Rule of Flaw and the Costs of Coercion: Charting Undisclosed Burdens of the Administrative State,” and comprises an element of A Brief Outline of Undisclosed Costs of Regulation.)

The deterioration of the principle of separation of powers is a signature feature of the powerful federal Administrative State. This corrosion is accompanied by a loss of federalism and enfeeblement of the constitutional authority of the states.

As most matters are not public policy questions, fewer still are properly federal concerns as distinct from state, local, church or association, family or individual ones. Therefore it would seem sensible, as Judge Harvie Wilkinson advised in “Assessing the Administrative State,” to “draw up a balance sheet of assets and debits" for the Administrative State, Congress, states, and the private sector. Education, health care and retirement come to mind as elements that do not belong in the federal category.

Guidance to agencies on regulatory analysis provided in the Office of Management and Budget’s Circular A-4 does make an appeal to advantages of leaving matters of regulatory concern up to individual states. However, the regulatory enterprise itself makes that advice fruitless. As UC Berkeley’s Steven Hayward notes, “A chief feature of the Administrative State is its relentless centralization, but with a reciprocal effect: its mandates, regulations, distorting funding mechanisms, and elitist professionalism have corrupted our political culture all the way back down to local government.”

An inevitable consequence of the Administrative State’s ascendancy over Congress is the overlord status it also enjoys over states in many ways. That is, as the distinction between state and federal roles has been erased in favor of Washington. Federal funds take a useless orbit from citizenry up to the federal treasury, making re-entry burnout as grants-in-aid to state and local governments. These grants involve health, transportation, income payments, education, job training, social services and environmental protection. And with top-down spending comes top-down regulatory control.

Grants from the federal government to states ballooned from 12 in 1920, to 132 in 1960, to over 1,300 today, with outlays topping $700 billion in 2018.

The incentives of the regulatory state undermine purported regulatory goals in economic, environmental or safety matters. For example, nationally enforced standards like environmental policies enjoy overwhelming political entrenchment that eliminates potentially superior local, regional, or private resolutions. This is costly and counterproductive. Economist Bruce Yandle has demonstrated how the public interest rationale for federal regulation fails to appreciate the self-interested incentives of environmental groups, national industries, regions and localities, officials, elected representatives, members of environmental organizations and others who seek that higher-level control.

The resultant coercive federal uniformity provides more benefits to the “iron triangle” of industry, greens and bureaucracy, while the environment could benefit more from the diversity of federalism. This is costly to the public in terms of dollars and loss of environmental amenities or mismanagement. The story can play out across other policy matters.

The “iron geometry” phenomenon persists and intensifies as anti-federalist administrative ambitions seek to go international, as the regulatory apparatus of the Paris climate accord attests. Competitive Enterprise Institute founder Fred L. Smith Jr. lamented in a Mont Pelerin Society presentation called “The Bankruptcy of Collectivist Environmental Policy” that "The creation of a global regulatory system …would replicate … the progressives’ earlier success in shifting economic-planning power from the private sector and local authorities to national or federal authorities.”

“Since a primary factor behind the resurgence of classical liberal ideals and ideas has been globalization,” Smith continued, “any success in implementing global progressivism would be a far more serious threat to classical liberal hopes. Such a global regime would eliminate a sort of competition between sovereign states on regulatory and tax policy."

On top of the loss of federalism already endured, any transformation to a global regulatory state enabled by the precedent of a bloated national one will in turn add greatly to the regulatory costs of the loss of liberty discussed elsewhere in this series.