Saturday, July 01, 2006

Miron on Federalism

My friend Jeff Miron argues that "many current federal policies should be left to the states." In general, I share that sentiment. Competition among governments, like competition among firms, produces better outcomes.

Yet I am not persuaded by Jeff's argument regarding redistribution. Here is Jeff:

The standard view is that policies like welfare must be federal; states will avoid redistribution for fear of becoming welfare magnets. This concern is understandable, but a different mechanism suggests redistribution is often excessive. Redistribution to the poor creates a demand for redistribution from the near poor, and then from the sort-of poor, and then from the working poor, and so on. The end-result is massive redistribution, mostly from the middle class to the middle class. This generates huge distortions.

Nothing guarantees, of course, that leaving redistribution to the states gets the balance just right. But the chances are better since competition between states nudges against the tendency for excess redistribution.

Jeff would like to see less income redistribution. That's a legitimate point of view. And I agree that states would do less of it. But it doesn't follow that the responsibility is a state function rather than a federal one.

Jeff's argument seems to take this form:
Fewer students should study sociology. The math department would do a bad job teaching sociology, discouraging students from taking it. Therefore, the dean should reassign teaching sociology to the math department.
Just as the math department is the wrong place to teach sociology (regardless of one's view of sociology), state governments are the wrong place to redistribute (regardless of one's view of redistribution).

The fundamental problem is that labor mobility and significant redistribution are incompatible if the redistribution is done at the state or local level. Milton Friedman once said, "You cannot simultaneously have free immigration and a welfare state." The same is true within countries as between countries.

If Jeff wants to convince people that we should redistribute less, he should address that issue directly. He will win the argument with some people and lose it with others. But Jeff won't get anyone to change his mind with the claim that redistribution is better done at the state level.