Monday, February 20, 2017

The Shape of Things to Come

The great American experiment in Democracy may not be over, but it has certainly failed. America, once a wealthy, militarily powerful, and culturally influential nation, now marches toward a future position of poverty, weakness, and irrelevance. Historians of the future will emphasize that this American collapse was not brought about by competition from greater nations, nor by Russian meddling, Chinese currency manipulation, international terrorism or illegal immigration. Americans, they will note, had an election, and thereby made a self-destructive choice. As they analyze the election of 2016 they will find confirmation of what has always been known about Democracy, that its weakness, its Achilles’ heel, is the ignorance of the electorate.

But for us Americans today, that historical analysis is irrelevant. We are now on the other side of one of the the major pivots in world history. Ineluctable forces have been unleashed, and the outlines of a new order are beginning to take shape. Whither America?

While tensions run high, it seems likely that President Trump and the Republican Party in Congress will agree on enough to achieve a major shift of power away from Washington. The plan, in broad terms, seems to be to reduce federal regulations and taxes. Reduced taxes, especially if combined with increased spending on military and border control projects, implies reduced federal funds for states. Given the anti-regulatory stance of both President and Congress, any transfers that survive are likely to be in the form of block-grants with few regulatory strings attached.

This would be a major and voluntary reduction of the power of the Federal Government. Constitutionally, the direct authority of the Federal Government over the states is quite limited. The power and influence that the Federal Government now has is largely based in its ability to attach regulations to the money it gives to states and to regulate interstate commerce. If the Federal Government is going to give less money to states, attach fewer regulations to the money it does give, and regulate interstate commerce less, the basis for a great deal of federal power and influence in America will simply disappear. States will be set onto much more independent courses.

At a sufficiently theoretical level, this is neither good nor bad; it is just different. Many Americans imagine such a system would be close to paradise, presuming that deregulated businesses would flourish, resulting in comfort and stability for all. This is probably more magical thinking than reality. Nevertheless, some of the outcomes of greatly reduced federal power seem logically predictable.

Though rarely acknowledged, federal power is not just regulatory glue, but is economic and cultural glue as well. For example, states are eager to accept federal funds for public schools, and those funds come with federal rules that require schools everywhere to adhere to certain policies, such as not discriminating against students or teachers on the basis of gender, pregnancy, or sexual orientation. One result is that public school systems tend be structurally and functionally similar from state to state. Reducing or eliminating federal funds, and reducing the rules that are attached to those funds, gives each state more authority to set its own policies. Major differences in policy from state to state, both in education and other areas, will quickly result.

The biggest difference between states, of course, is economic, and this constrains state reactions to changes in federal subsidies. If they have the political will, more populous and economically diversified states such as New York and California can raise state taxes to replace lost federal revenue. They can expand their own welfare, healthcare, environmental protection, and other agencies to take up the slack left by the exit of the federal government from those areas of concern. But for many states, smaller and less economically developed, political will is irrelevant. They simply don’t have the tax base to draw on, and will be financially unable to expand their own bureaucracies to replace lost federal services. What the federal government does not do for them won’t get done at all.

In the long term, the predictable result is a much looser confederation of states, with enormous state-to-state differences in the distribution of wealth and poverty, commitment to public education, consumer protections, environmental regulation, access to health care, and the type and number of companies providing jobs.

In the shorter term, a period of adaptive upheaval is all too predictable. With careful planning and a willingness to phase changes in over time, some of the disruption could be minimized. There is, of course, no rational basis for expecting such deftness of the Trump administration, nor patience from congressional Republicans who need to make changes before the 2018 elections, certainly before 2020. These changes are going to happen fast! As a result, state regulations and taxes will be in flux for some time, and individuals and businesses will struggle to adapt in an unstable environment. A lot of us will be voting with our feet, looking for jobs in states more amenable to our personal values.

All of this assumes that Trump and Congress can maintain a working d├ętente for at least a couple of years, and that the Republican base remains as enthusiastic about the defederalization process as they now seem to be (or at least are assumed to be). There are some potential stumbling blocks. The states that most solidly support Trump and Republicans in Congress are also the states that can least afford to lose federal subsidies, and are the states most likely to suffer economic dislocations. A lot depends on how soon the residents of those states recognize the full impact of getting what they wished for. A lot depends, too, on whether or not the federal government remains pure in its intent to reduce its own power, or tries instead to force anti-regulatory policies on economically important states like New York and California. If that happens, those and similarly well-heeled states could decide they’re better off leaving the union. Regardless of the economics, increasing cultural differences between states, especially between urban and rural states, is going to make it a lot harder to keep America together as a single nation.

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