Federalism in Action: The Case of Alcohol and Local Autonomy

Where would you expect Federalism to occur? In other words, where would expect a government to devolve authority to a lower government. Importantly, this is different from freedom vs authoritarianism. The lower government might choose to be more or less free. For example, right now in Florida there is a state-wide constitutional amendment on the ballot that would enshrine each individual’s right to hunt and fish. Ignoring the particulars of what that means, it’s clearly a step toward centralizing policy rather than decentralizing it. Central governments can be strong and protect citizens, or they can strip us of rights. Either way, being small players and far-removed, it’s difficult for us to affect the policy decisions.

That concern is philosophical, however. Maybe my opinion shouldn’t matter (one could easily argue). Even as a matter of prudence, one-size-fits all sets a standard, but the standard may not be a good fit for every locality and circumstance. There is a trade-off between ease of navigating a uniform policy across the land and customized policies that are particular to local priorities. Given that Americans can vote, is there a way for us to think about when a policy will be (should be?) centralized vs decentralized?

There is a great case study by Strumpf & Oberholzer-Gee* on the matter of alcohol policy after the end of national prohibition. The US has a dizzying array of liquor laws across the country and even across states. Some states have a central policy of dry or wet, while others devolve the authority to lower governments. How should we think about that policy? What determines the policy of central versus devolved authority?

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Market Preserving Federalism in the USA

One of my favorite economic journal articles is by Barry Weingast and has the short title “Market Preserving Federalism” (MPF). In this paper, Weingast lays out the conditions necessary for two tenuous equilibria: A) Federalism  & B) Federalism that preserves a market economy.  Given that we just celebrated Independence Day in the USA, it seems to me like a good opportunity to share some brief thoughts on this paper. I’ll speak in terms of the US for ease.

Weingast enumerates 5 features for MPF, starting with two that characterize a stable federalism:

F1) A hierarchy of governments, that is, at least “two levels of governments rule the same land and people,” each with a delineated scope of authority so that each level of government is autonomous in its own, well-defined sphere of political authority

F2) The autonomy of each government is institutionalized in a manner that makes federalism’s restrictions self-enforcing

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Laboratories of Democracy in Pandemic

You’ve probably heard the phrase that US states are often “laboratories of democracy.” The phrase comes from a Supreme Court case. It’s well known enough that it has a short Wikipedia page. The basic idea is simple: states can try out different policies. If it works, other states can copy it. If it doesn’t work, it only hurts that state.

The 2020-21 pandemic has provided a number of possibilities for the “states as laboratories” concept. Here’s three big ones I can think of (please add more in the comments!):

  1. Do states that impose stricter pandemic policies (“lockdowns”) have better or worse outcomes? This could be about health, the economy, both, or some other outcome.
  2. Do states that end unemployment benefits sooner have quicker labor market recoveries? Or are these not the main drag on the labor market?
  3. Do states that offer incentives for vaccination have higher vaccination rates? And what sort of incentives work best?

These are all good questions, but let me throw some cold water on this whole concept: we might not be able to learn anything from these “experiments”! The primary reason: the treatments aren’t randomly assigned. States choose to implement them.

Let’s think through the potential problems with each of these three areas:

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