(cross-posted at Blog of the Century).
I like Harvard economist Greg Mankiw. Heâ€™s a terrific writer and economist. A year ago today, I wrote a complimentary column about Mankiw’s support for gas taxes. Wow, do I disagree with his social policy vision. In todayâ€™s Times, he has a column on federalism, â€œCompetition is healthy for governments, too.â€ I find this a pretty sound argument for the other side.
Our federalist system has long proved problematic when it comes to meeting the basic needs of severely disadvantaged people. State governments face tight constraints on taxation. Their administrative capacity is often limited. Moreover, states are often expected to do the most in helping the needy at precisely the moment when national or global economic forces are battering the state economy.
When wealthy people can move, states face clear limits on progressive taxation. When poor people can move, states face very strong incentives not to be the softest touch. In the resulting competitive equilibrium, many states end up with muchÂ lessÂ progressive policies than their citizens would otherwise want, and much less progressive than the optimal national policy would be.
Whether generous states truly are â€œwelfare magnetsâ€ remains unclear. The empirical literature is a bit mixed. In the disability arena, I would not be surprised to find that the story has substantial validity. Consider the following story….
Last summer, the Chicago Tribune ran an article titled, â€œParents of disabled children giving up on Illinois.â€ Reporters Bonnie Miller Rubin and Monique Garcia described families buying property in neighboring states or moving to more liberal places when a child was diagnosed with autism, cerebral palsy, or other challenging disorders. The story was entirely anecdotal. I donâ€™t know how widespread this is. Illinois ranks near the very bottom in national measures of disability services. If you really need these services, itâ€™s obviously sensible to check out the alternatives.
The Tribune noted two families, one of whom receives residential treatment at an annual cost of $85,000, another who put her house on the market one week after her preschoolerâ€™s autism diagnosis: â€œShe was headed for Kenosha for Wisconsinâ€™s generous funding of intensive therapy.â€ Itâ€™s hard to imagine that Wisconsin lawmakers are overjoyed at the prospect of becoming a magnet for people who require costly autism services. The proximity of Chicagoâ€™s huge low-income population has always provided a strong argument for retrenchment of Wisconsin and Indiana social services.
In the case of really expensive disability services, itâ€™s fairly obvious that some degree of coordination and basic national standards are required to keep states from racing to the bottom, to ensure (a) that families can get reasonable services, and (b) that the burdens of costly care are fairly distributed among the states.
None of these issues of fiscal federalism should surprise anyone with a passing glance at the economics literature. As one commentator put things:
Anyone who finds the Massachusetts health insurance mandate objectionable can easily move to live-free-or-die New Hampshire. A national mandate leaves people with fewer options. This is one way the health reform advanced by Mr. Romney as governor differs from that pursued by President Obama, and why the Massachusetts law raises fewer constitutional objections than does the national one.
While conservatives embrace governmental competition, liberals have good reason to worry about it. The left has a more expansive view of the role of public policy. Liberals want the government not only to provide public services but also to redistribute economic resources. In the words of President Obama, they want to â€œspread the wealth around.â€
Yet redistribution is harder when people and capital are free to move to other jurisdictions that offer better deals. If you are going to take from Peter to pay Paul, Peter may well decide to leave. It is perhaps no surprise that state and local tax systems are less progressive than the federal one.
These words come from Mankiw’s column.Â Thereâ€™s nothing exactly incorrect there.Â Thereâ€™s nothing apparently amiss, either. There are two nondescript guys, Peter and Paul. Some states wish to â€œspread the wealth aroundâ€ by grabbing some Peter cash and handing it to Paul. Others donâ€™t. Whatâ€™s the big deal if Peter moves someplace that wonâ€™t grab his cash for someone else?
You donâ€™t read this cheerfully complacent passage and presume that Paul might be a wheelchair-bound kid with cerebral palsy. You donâ€™t consider what might happen if families flee live-free-or-die New Hampshire for a more generous polity when they actually run into trouble. You don’t consider what would happen to the more generous polity if this sort of thing starts to happen a lot. You donâ€™t really consider why Peter doesnâ€™t want to do more to help.
You certainly don’t consider the punishing real-world consequences of a House Republican budget Mr. Mankiw’s advisee Mitt Romney called “marvelous” which would deeply cut and block grant Medicaid with obvious consequences for the aged, poor, and disabled.
Mankiw concludes by noting:
If the governmentâ€™s job is merely to provide services, like roads, schools and courts, competition among governmental producers may be as good a discipline as competition among private producers. But if governmentâ€™s job is also to remedy many of lifeâ€™s inequities, you may want a stronger centralized government, unchecked by competition.
These are two fundamentally different visions. The next election, and to some degree every election, is about which one voters find more compelling.
Is it just me, or did Mankiw pen an argument for Obama here? I and other liberals are happy to have local governments discipline each other through competition. Weâ€™re happy to outsource and to use market mechanisms in other ways, where appropriate. President Obamaâ€™s â€œrace to the topâ€ is one example of such thinking.
Itâ€™s the other piece Iâ€™m trying to understand. Mankiw asks â€œif governmentâ€™s job is also to remedy many of lifeâ€™s inequitiesâ€¦â€ As if this were a puzzling question. Especially in these troubled times, I find it strange to wonder.