Michael Greve, Monday, April 20, 2015
Articles,  Blog

Michael Greve, Monday, April 20, 2015

– Good evening and welcome to the Marian Miner Cook Athenaeum. My name is Shannon Miller, and I’m one of the two Ath fellows. Please excuse my voice, I’m recovering from a cold. (laughs) Presidential elections, like the one we have coming up in 2016, force certain discussions back to the forefront every four years. One such topic we’ll be sure to hear much about, as we approach 2016, is federalism and separation of powers. What should the relationship between the states and the federal government look like, and what powers should the president have in relation to the other branches and the states? Michael S. Greve, who teaches constitutional law at George Mason University School of Law, has a lot to offer on these questions. Greve argues that the way we understand federalism today is based on the cooperative model of the New Deal, where a combination of private and public affluence, homogenous states, and a functioning congress, a rarity these days, succeeded in expanding government services. However, watching the news for 15 minutes should demonstrate that these conditions no longer hold. And Greve believes they won’t return anytime soon. He argues that this predicament heralds the rise of an essentially extralegal executive federalism. And avoiding that fate would require a major overhaul of our most basic federalism arrangements. Professor Greve was previously a scholar at the American Enterprise Institute, and was the founder and co-director of the Center for Individual Rights, a public interest law firm specializing in constitutional litigation. Michael Greve’s Athenaeum talk is sponsored by CMC’s Rose Institute of State and Local Government. As always, I must remind you that audio and visual recording are strictly prohibited. Please join me in welcoming Michael Greve to the Ath. (audience applause) – Thank you very much for the kind introduction, and thanks I think, the Rose Institute for the… kind invitation, and all of you for being here. That was a terrific summary of my talk. And maybe I should just spend 35 minutes telling stupid lawyer jokes. (audience laughs) It’s actually a fairly grim… subject I have tonight… I have teed up for tonight. It’s about federalism… but it’s about federalism in the way Moby Dick is about a whaling voyage. What I really want to do is think a little more broadly about the state of our public affairs, and ideally to think somewhat seriously about the Constitution. And so, here’s how, and let me start you with something of a paradox. The Constitution embodies general principles of federalism. It embodies general principles of lawful government. It embodies some other principles, but this is what I wanted to focus on. And we like to think that these principles, federalism, the rule of law, government on the laws are perfectly coherent and consistent, right? Federalism comes from the Constitution, or it comes from the Congress, under duly enacted statutes, but either way, it’s lawful government. My somewhat heterodox and dispiriting… hypothesis here is that under current conditions, federalism and government under law have become incompatible. You can have one or the other, but you can’t have both. So put somewhat differently, extralegal improvisation on the part of the federal government is the only way for our political system to sustain a federalism that is collapsing and crumbling at all ends. I realize that sounds awfully abstract, but you’ll sort of recognize the theme, I think, if you think about the stories that you read in the newspapers or in the blogs, or whatever else you read. The coverage of our domestic policy debates, so that the lawful government theme is everywhere. The present administration has been widely criticized for pushing awfully hard on the outer limits of lawful government. And many of it’s biggest initiatives on climate change, and the Affordable Care Act, and immigration, and a lot of other things have ended up in the federal courts with mixed results. I wanna emphasize that for the purposes of my talk tonight, it doesn’t really matter what you think of the legal merits of this or that dispute, or who you think is right, and whose side you’re on. In fact, one of my points will be that you would get the same result, government operating at the outer limits of the Constitution under a Republican administration. And then, note that the federalism theme… is equally prevalent. So at times, the administration has been criticized for ignoring federalism and trampling upon states. It’s currently trying to bamboozle or drum states into a very, very ambitious clean power… program, under a statute, the Clean Air Act, which is not remotely designed for the endeavor and provides no authority for it. But for the most part, the administration’s legally dubious or doubted maneuvers have actually been undertaken on behalf of states, and in favor of states. So the administration is attempting to waive ironclad legal commands to allow states to legalize marijuana. It has waived numerous… requirements in the Affordable Care Act to permit states to establish health care exchanges. It has waived virtually all requirements of the No Child Left Behind Act. Most strikingly, maybe, it’s offering states to pay a 100% reimbursement for covering additional beneficiaries under the Medicaid statute on the sole condition that the states please take the money. All of these initiatives were designed or are designed to try and accommodate the states’ interests and demands, and to that end, all of them waive or suspend duly inactive statutes and substitute a patchwork of executive state agreements for those statues. So that’s my principle theme. Our federalism is related to the pressures that now operate on the rule of law. Federalism is principal source of that pressure, and more federalism of the sort we have would mean yet more extralegal and extra-constitutional government, and that will be true under the president of either party. That thought is so cool, and it is so deep that I wish it were my own. But it isn’t. It’s actually Alexander Hamilton’s. So the entire talk tonight is an extended riff on Federalist 15 and 16. (audience laughs) It’s not about anything new, right? It’s just about all the things we have forgotten. As you heard in that excellent summary at the beginning, our federalism is by and large the federalism settlement of the New Deal. The conventional moniker for that federalism is cooperative federalism… which the New Dealers coined. A term which they coined to distinguish their federalism from what went before, which they called dual federalism. So dual federalism operated on principles of separation and specialization. So the federal government is one of limited and enumerated powers. So the feds do their stuff, and the states do theirs, and there’s your separation and specialization. Cooperative federalism operates on the opposite principles, concurrent state and federal powers over the full range of domestic affairs. And because you have both levels of government operating over the same stuff, they have to bargain to sort out their mutual relations. So from labor law to land use, from banking to bathrooms, everything is subject to regulation by several layers of government. Likewise, federal statutes are implemented primarily by state and governments. Almost all of them are, often under federal grant programs. The judicial corollary of this is something called process federalism, which means that federalism must be protected through the political process, as opposed to judicial interpretation of formal constitutional norms. The law that governs this universe, these relations between… federal and state governments, is kind of complicated. I teach it in a course called Federal Courts, which is the nastiest thing you’ll encounter in law school. So let me bore you with it for the next 20 minutes. No, let me not do that. Let me instead sort of take you back to the sort of constitutional baseline. My point in droning on about the constitutional baseline is not to treat you to some original intent tirade, but to talk about and illuminate the Constitution’s political economy. As you know, the Founders did not use the word federalism in our… modern sense. James Madison called the system a compound republic. It’s a mix of national and federal elements. The fastidious taxonomy appears in Federalist 39. And insofar as is relevant for tonight… Madison explains there that the general government’s powers are federal in extent… and national in operation. What he means by federal in extent is something very familiar. It’s a government of limited and enumerated powers, and the states get to do the rest. By national in operation, he meant several things. First, federal law is supreme over state law, right? So it trumps any contravening state law. And second, he meant that federal law would operate directly on individual citizens, not on states, and without the assistance of the states. This national operation of federal law is not some sort of curlicue on the Constitution. How cute is that? It’s Archimedean point. Flip back a few essays, and now go to Federalists 15 and 16. That’s where Hamilton deals with what he calls, and actually, he rails against the great and radical vice of the Articles of Confederation. What does that vice answer? The principle of legislation for states or governments in their corporate or collective capacities, and as contradistinguished from the individuals of whom they consist. That’s the great and radical vice of the Articles, is operates on states as states. What he has in mind principally is the requisition system. Why is that a vice? Well, unlike individual citizens, Hamilton thought and wrote… subordinate governments can be ruled only by military force, never by law. And since the national government wouldn’t either be willing nor able to use force on states, the result would be sort of an imbecilic… feckless government. “Law,” he wrote, “can only operate on individuals, the only proper objects of government.” And so, the federal government must carry its agency to the persons of the citizens. It must stand in need of no intermediate legislations, but must itself be empowered to employ the arm of the ordinary magistracy, by which he means federal courts, to execute its own resolutions. Right, supreme federal law, national direct in operation. Fast forward 150 years and look at the New Deal’s cooperative federalism in that light. It looks like the New Dealers inverted the entire… logic of the compound republic. As you all know, the general government’s powers became national, meaning effectively unlimited in scope, in extent. But they became federal in operation. That’s what cooperative federalism means. Federal laws operating on and implemented by states. So it looks like the New Dealers… enshrined very deliberately, very purposefully Hamilton’s vice, a government over governments. Now, why would they do that? Who would do such a thing? Well, there were lots of practical reasons. Put yourself into the shoes of Franklin Roosevelt and his assistants, or his aides. So they try to ramp up an entire big, national government in a real hurry. And you can not create out of nothing, a federal bureaucracy to administer, let’s say, unemployment insurance. So naturally, you go with what’s already there, state bureaucracies. But there were also two quasi-constitutional calculations at work, and here they are. One, once the federal government’s, the national government’s powers become national in extent… Unlimited… leaving them national in operation would mean that the states might as well go out of business, right? Federal law (mumbles) front, and it’s directly enforced, what’s there left to do for states? Nothing. Right? Securing the states’ operations, states’ assistance in the operation of federal law, and in the implementation of federal law, that was a way of giving states something useful to do, and as the New Dealers called it… of preserving the… federal balance. And the second quasi-constitutional calculation was that the Constitution had in fact solved Hamilton’s force all law problems… in two ways. One is the Supremacy Clause, right? So if the feds legislate for states, and the states don’t cooperate, well the feds can always respond by legislating directly, or by administering the program directly. Those arrangements are called conditional preemption statutes. And the other quasi-constitutional consideration that makes you think, oh Hamilton, that’s just so outdated, the Constitution has solved that is the Constitution gave Congress access… to an independent source of funds. It has federal tax powers, right? There’s money. We can induce states to cooperate with money. So put this a little differently, Congress can legislate for states, not individuals, without threatening brute force and military intervention, because in a crunch, it can always preempt states and legislate for individuals, courtesy of the Supremacy Clause. Or Congress can bargain around the constitutional baseline, because the taxing powers conferred by the Constitution, unlike the Articles, provided with an independent source of revenue, which the government can then use to incentivize the states to cooperate. And there you have it, cooperative federalism. That system… worked for many decades. By worked, I don’t mean the policy outcomes. Most scholars who study these things, and these are not libertarian crazies, okay? Peter Schuck at Yale… others, argue that the system hasn’t worked very well at all. Here’s the kinds of examples they have in mind. Education became a cooperative program in 1965. Since then… the per student cost… of education has tripled in real dollars. And measured student achievements have flat-lined. You can generalize that lesson. Cooperative federalism consistently produces systemic policy failure, fiscal irresponsibility, public disaffection. In short, it has given us exactly the feckless and imbecilic government that Hamilton predicted. But what I mean by it worked is the system worked in a political and institutional sense. It’s central objective was the expansion of government at all levels. And that project has succeeded beyond its architect’s wildest expectations. Crucially, the growth of government has principally been the growth of state and local government, not the federal government. So in subsequent federalism innovations, like the big innovations of the great society, built on and extended the New Deal settlement. And to this day, New Deal federalism, cooperative federalism has proven astoundingly resilient to very severe outside shocks, like the so-called Reagan Revolution, and then the fiscal crisis in 2008 and 2009, right? So it’s a bit like… the European Union, right? In the EU, there is no single problem to which ever closer union is not the answer. And by the same token, there’s never been a problem in the United States to which more cooperative federalism is not the answer. So if the Elementary Education Act, originally enacted in ’65, isn’t working, let’s have No Child Left Behind. If that fails, let’s have a Race To The Top. If that bombs, let’s have Common Core. That won’t work either, but that’s just a point I’m trying to make. The results don’t matter, the system will remain stable. My point, and this is really my central point, I suppose, is this. This system is now, cooperative federalism, is now crumbling at all ends. That’s why we’re trying to patch it up with extralegal means. I’ll give you a few more illustrations in a moment. Why should that be so? Well, the answer, and this was also in the excellent summary, that I think cooperative federalism presupposes three conditions. Economic affluence… willing states, and a functioning congress. And these conditions, I’ll go though them in a sec, have all ceased to exist, and they’re not going to return any time soon. So start up at the top, the end of affluence. What I mean by affluence is not an absent level of wealth. It’s more like a general sense of growing prosperity, and you know, hey, we can afford this. So for example, we cheerfully tolerate the fact that corporations that operate in national commerce are governed by 51 different sovereigns. A country will do that only if it thinks it can afford to waste a great deal of money and productive energy. But this connection between affluence and cooperative arrangements is particularly tight in the fiscal domain, that is to say conditional spending programs, such as Medicaid. The point of these programs, federal programs, is to increase the demand for government by lowering the perceived tax price of the programs, both at the federal and state level. So these programs are built to demand ever-increasing cash infusions, which is how they have developed over time. And when that can no longer be done, or taken for granted, the federal state bargain just falls apart, and so it has. Remember, the Affordable Care Act offered states a 100%… reimbursement for expanding Medicaid. Two dozen states litigated against that largesse, and to this day, there are 20 states that refuse to take the money. There’s undoubtedly a sort of a partisan and ideological element to this. Those states, red states, they don’t like Obamacare. But that could be overcome by offering them yet more money. What is new here, I think, is that this proposed bargain, here’s 100% money, is too good to be true. States no longer trust the federal government’s pre-commitment, for the excellent reason that Medicaid’s expansion at the federal level is purely debt financed. Moreover, Medicaid is ruinous to state governments with or without the… ACA expansion. It’s now the… single biggest… state run program. Spending is much higher now than even for education, and it’s projected to grow at a rapid clip, about doubling in less than a decade. That can not happen, that can not continue. And you can see the strains already. The point of federal transfer, as I’ve tried to explain, is to spur local tax effort. No state would spend 30% of its budget on Medicaid if they had to raise their own funds for that, but citizens may be willing to tax themselves in the interest of attracting more federal funds. And that is no longer working. For well over a decade now, state owned source revenues have stalled out at 15% of GDP. They’re no longer growing. What happens when the owned source cost of these federal programs keep rising? Because budget cuts would mean a loss of federal transfers. Well, states have solved the problem, and the way they’ve solved it is they’ve racked up debt in off-budget places… like pensions and other post-retirement benefits. Those debts now exceed five trillion dollars. Those debts will not be paid, because they can not be paid. And that problem can’t be solved through yet more federal transfers, so the game is up. Second point, willing or unwilling states. Cooperative federalism, as the name indicates, presupposes willing states, not just a few, but well-nigh all of them, because otherwise the federal programs would not go through. And that’s true, even if the federal statutes provide for a federal fallback option, like for example, the Clean Air Act or the Clean Water Act, or for that matter, the Affordable Care Act. No federal agency is built to administer its own program. They really need the states. That’s why federal state bargains are structured to produce uniform cooperation among states through some combination of carrots and sticks, coupled with a premise or promise of state flexibility. That is to say, they’ll have the statutory authority to shirk. And those arrangements can not be made to work under conditions of very severe state heterogeneity if indeed they come about in the first place. So you’ll notice there were no institutionalized cooperative federalism programs that were stable prior to the New Deal. And the reason was, you could not drum the recalcitrant states in the South into a federally sponsored bargain. They would just say no. You can overcome those dynamics under conditions of crisis and unusually high partisan consensus… at the federal level, as we did have under the New Deal and of the Great Society. But we don’t have that consensus now. So in fact, the ideological divisions among the states have become sufficiently severe to make states defect from existing arrangements, and to resist any effort to extend those arrangements, the Affordable Care Act, where the states just say no. That’s the most obvious example, but there are others. Climate change is another example. And what that means is the federal programs will just disintegrate, and take on this piecemeal… character. So the horizontal division among states that you observe in all these red state, blue state maps, that’s inconsistent with cooperative federalism. It can’t be done. Finally, the Congress. Cooperative federalism says that federalism comes from Congress, and is protected in and through Congress. Nothing comes from Congress these days. We’re about to regulate… the Internet under a statute that predates the fax machine by five decades. I am assuming against all evidence that you know what a fax machine is. And when Congress does act, it orders federalism basically by saying to some agency, you do it, you order it. Either way, national federalism is… executive federalism. In a way, that’s an extension of the New Deal. I think this notion of Congress will provide for federal relations, was always… a charming delusion. You always needed a big administrative machinery to administer these systems and the bargains, and to cut deals. But the executive aggrandizement required under conditions of congressional deadlock and severe dissension among states is of a different order. So you now have agencies fabricating entire programs… from whole cloth in derogation of their organic statutes. You have agencies commandeer vast resources and revenue streams, raise and distribute unappropriated funds, and endeavor to entice, cajole, bludgeon states into some form of cooperation, whether states want it or not. So go, read the papers. I mean, I mentioned some of these things at the outset. Executive enforcement discretion is now said to encompass the authority to waive entire statutory programs for selected states. The administration has claimed such waiver authority in derogation of the statutes in a wide range of areas. Drug policy, immigration education, Clean Air Act, and of course, Medicaid and the ACA. Even as we speak, Secretary Burwell is attempting to entice states into Medicaid by waiving every statutory requirement under Medicaid, except take the money one state at a time. The ACA’s waiver provision for these health care exchanges will have health benefit exchanges. The waiver provisions kick in in 2017. You’ll see the same pattern, especially under a Republican president. You may agree or disagree with these programs. You may think they’re a good idea or a bad idea, but my point is there’s no law here. Congress has nothing to do with this, except writing checks. That’s what executive federalism means. So here’s another way of putting this point. We are living with Hamilton’s curse. You can try to run a government over governments, but it’ll be imbecilic, and it won’t be a government of law. So now what? Well, I think, I hope. I think I know, we won’t resort to Alexander Hamilton’s alternative, military force. But the alternative here is not much more appealing. We won’t govern by law, either. To check these tendencies towards executive government, executive federalism, you have to look to either Congress, or you have to look to the courts. But Congress, it turns out, can’t or won’t do all that much. I could give you examples that may be a useful exercise for Q and A. The courts can not do that much, either. I’m speaking as somebody who has to teach this junk, day in, day out. So, we’re operating at the outer margins… of lawful and constitutional government, and undoubtedly, the boundaries are shifting. So the rock-bottom proposition of American administrative law is that every administrative act must have a lawful basis. That is now giving way to the notion that administrative agencies may do whatever is not directly and specifically prohibited by their organic statutes. Right? Because without that, you can not make these programs work anymore. That is the administration’s actual position in King versus Burwell, which is the pending case over the Affordable Care Act and the exchange provisions. It says, established by a state means established by the federal government in a state. Why? Because without that, the entire Affordable Care Act disintegrates. There are less incendiary examples, but they’re almost equally big. The Clean Air Act is an example. So there, in order to make the Clean Air Act, which is designed for things like sulfur and really nasty stuff, to make that work for carbon dioxide, the administration had to say, or EPA had to say, well, the statutory numbers there, which say 250 tons per year emissions, actually what that means for carbon dioxide is 100 thousand tons. So 250 means 100 thousand, until we say otherwise. That position remarkably got four votes in the Supreme Court in 2014. The majority in that case horangued the EPA for its shocking and lawless behaviors. Those are the court’s words. But then it allowed the EPA to molder along with its program. And the next shoe in that theater has already dropped. I’ll leave that out, but I’d be happy to talk about the EPA’s clean power… plan… which is an even more extreme version or extreme example of… a program that has undertaken without much legal authority… and simply through a strategy of peeling off or coraling states… under the federal government’s programs one at a time. Where does that end? There’s actually substantial… literature, which you can read up on, on executive federalism in other countries. What all these countries have in common is a powerful executive… a weak and fractured legislature… serious cleavages among member states, and very high levels of federal to state transfer payments. What they also have in common is extremely high levels of corruption, and a fiscal and political instability. The leading examples, and you won’t like this one bit, are Nigeria… and Argentina and Brazil. What usually happens in these systems down the road is that federal transfer payments and exemptions, waivers as we call them, cease to correspond to any discernible public purpose, let along the statutes. What they correspond to is the objective of stabilizing the president’s, the executive’s political power base. So if a state wants to get a fair bargain, it had better go along with the president’s wishes and preferences. For reasons that aren’t entirely clear to me, that hasn’t happened here yet. If anything, the reverse is true. So to persuade republican states to participate in federal schemes… the administration has to give them a lot more money and cut them a lot more slack than it would with democratic states, because the red states have a much higher reservation price. So there’s a great deal, for the time being, great deal of mileage… for a state in being obstinate and ornery. Still, I don’t think the Argentina scenario is totally out of the question. And I’m quite confident we haven’t seen the end of attempts to hold federalism arrangements together… by executive edict and bargain. In the end, I think one of these things will have to give. Either we dispense altogether with legal and constitutional niceties. That would not be good, because I have to keep my family in shoes. Or else we rethink and reform our federalism arrangements, and in the end, I think there’s actually some hope that law will triumph over executive aggrandizement. The reason, I think, is not some sentimental attachment on the part of the American people to the rule of law or to the Constitution. I think the reason is the country’s ideological division. So one camp or the other will try to mobilize… rule of law precepts against the other camp’s political ambitions. For now, resistance to executive aggrandizement… is the stuff of right-wing agitation. But look, if the present administration’s theories of administrative law are even remotely true… Bush 45… would not have to repeal Obamacare. Could just waive the entire statute and put its own thing in place without the Congress, in negotiation with favorite states. And in that environment, I think the current political fronts would change very, very quickly. So regardless of the political constellation in Washington and the states, I think over the coming years, there’ll be a lot of constitutional agitation and litigation over these issues. Maybe in all the commotion, we’ll find our way back to somewhat more lawful constitutional federalism arrangements. Maybe we won’t, but I think you should this space, because a great deal hangs on what happens. Thank you. (audience applause) – [Shannon] We’ll have time for questions. If you have a question, please raise your hand and wait for Dante or myself to come to you with a microphone. And as always, preference will go to students. – [Student] Thank you for your talk. I was wondering, what do you think it would look like for the United States to return to dual federalism, and would that be a desirable outcome. – Yeah, it would be a very desirable outcome. You know that part of the answer, right? I don’t know what it would look like. Let me put it this way. To the extent that– I mean, I’ve described this switch from… federal powers, national in operation to national powers, federal in operation, right? I’ve just about given up… on relimiting… the federal government’s powers. I think the fights there, from Lopez to… Morrison… to NFIB Versus Sebelius, I think that stuff is at the very outer margins. I don’t mean to belittle it, and I think it’s important… for lots of reasons that I’d be happy to explain, but I don’t think there’ll be much action at the front. I think all of the action is now… in the field of the federal operation… of national powers. And that was my topic tonight, these cooperative arrangements, as they’re called, between the federal government and the states. I would try– And what real federalism would mean in that arena… is… one problem, one sovereign. Right? So make these programs wholly national, or make them wholly federal, meaning let the states and local governments do them, but not these… interlocking arrangements. So to just give you an example of what that would look like. You could make Medicaid wholly national, right? And yank that money off the states’ budgets. I think that’s the only way to save them from fiscal ruin anyhow. So we’ll have to do it sooner or later. Might as well do it while there’s still time to do it in a roughly coherent way. Lots of my libertarian friends say, “That’s not a libertarian program, that’s not even a conservative program.” I don’t care. You have to somehow arrange the government so that it, so that it works. And once you have a single government responsible for the program, maybe we can run it in a fairly responsible fashion. You can cash it out or run it like the VA. I don’t really care. But make it one government or the other, and there are lots and lots of examples like that. And I think we’re running out of time to consider them. – [Student] Thank you for your talk. And I was actually going to ask how you perceive programs like the EPA regulating issues between states, and it seems like you just answered that by making them wholly state or wholly government programs. My question is, how do you think the Founders, such as Madison or Hamilton, would respond to the critiques that the anti-federalists made at the time of the ratification of the Constitution, claiming that there is no representation at those local levels, so how can a government program that is wholly national adequately respond to the needs of the people at the very local level? (coughs) – Excuse me. The first line of response, and the first response is I think Hamilton’s, which is if you look through the argument that he gives you, why the state implementation of federal programs… is really, really bad news. So he gives you two reasons. I mean, I’m distilling them now. I’m translating them into modern parlance. One is, there will be agency problems out the wazoo. That is to say, once you commandeer states around and try to make them do stuff, they can always shirk, and say, that was just too complicated, so it’s the federal government’s fault. And the feds can always say when stuff fails, well that was their fault. I mean, they have these faithless agents. So that’s the first reason. It’s just an unbelievably expensive way of running things, and irresponsibility is built into the system. And the second reason he gives you is that the monitoring costs for private citizens of these joint agreements, of these cooperative arrangements are huge. You can never tell whose fault that was, and they all have a strategic incentive to lie to you. And the way the separation of powers is designed is to give our agents incentives to rat on each other. To disclose information that would not otherwise come to light, because we can’t control them anyhow. But we can make our agents… control each other. That’s the way the system is supposed to operate. And what these cooperative federalism arrangements look like is they operate on the opposite principle. We let the agents collude, and then collective lie to us. Right? And they all have the same interest. Please give us more money, because if you do, it’ll work. So that’s the absolute worst system that you can conceivably have. I get the point that if these programs get too far away from you… they might no longer reflect local needs and local demands. Okay, fine, I get that. So if you have systems where local demands and local peculiarities are really, really important, like land use, get the feds out of this. Make those local if you have to. Conversely, I don’t see– I mean, look, Social Security is a wholly national program, and I think that’s the right way to go, because the feds have huge comparative advantages. They can tax on the national basis, and they know how to move gobs of money, and they’re just cutting checks. And there’s nothing local about the program that would force you to, or that would make you want to say, keep Social Security local. I don’t know what that is. And I think Medicaid is probably a little more like that. The reason why I, sort of, was so dismissive… of the constitutional considerations is that I see no hope… of drawing firm lines between, look, if we only think harder, we will figure out and all agree on what’s national and what’s local, right? So I think the first cup is to say, let it be one or the other, and then fight later on down the road over… how exactly to organize Medicaid. Does that make sense? – [Student] Thank you for your speech. So you mentioned that the federal government sometimes have to give some slack to states or give some money to cooperate, and you also mentioned that the federal government has the power to basically encourage states to pass certain legislations based on military or necessary laws. And I remember learning that the federal government once used the highway funds as a leverage to basically move the age of drinking to 21. I’m wondering to what extent you think the federal government should have the power to leverage such acts to pass legislations that are not necessarily military or taxation. – Yeah. I mean, put the military thing aside, that’s actually quite complicated. But the leverage point huge, right? Here’s what I think about it. Once you reach the levels that we have now reached, where well over half the states depend for well over 30% of their budgets on federal transfers, and some states collect more than 40%… of their funds from the federal government, the leverage problem is huge, right? And it’s a real danger. And it’s worth thinking about, and people are getting alarmed about it. So James Buckley, former senator, former judge James Buckely, has just written a book. It’s a sort of a little book. I mean, it’s gotta be around here some place. Professor Kessler has a copy, so ask him. It’s called “Saving Congress from Itself.” And he says, “look, this is so hopeless. We have to end any and all federal transfer programs, phase them out and end them.” And he’s not a crazy, trust me. That’s how serious it is. Now, if the question is, can I think of a constitutional principle… to limit these things? In particularly, the constitutional principle that is enforceable by courts in a fairly reliable way… of disciplining this process, there are some things I can think of. For example, there is a rule. It’s called a plea of statement rule, to the effect that if Congress means to impose conditions on states under these programs, it has to say so clearly. I believe that’s the right rule. I believe that it’s done a fair bit to discipline Congress, but at the end of the day, Congress can speak with clarity if it wants to. And so, there is no precept or principle, to my mind, that forbids Washington and the states from bargaining around the original constitutional arrangements. So the solutions there have to be really budgetary… and political and fiscal. I’ll add something to that, which is this. I think this will be more dramatic in years to come. We all sit around as if… and the political debate proceeds, as if 2008, 2009 never happened… and it can never happen again, because the Federal Reserve and our fine federal regulators have stabilized the system. There will never ever again be a fiscal crisis. Oh, really? I think 2008, 2009 was just a warm-up act. I think what is going to happen next time, and I don’t mean, you know, in your lifetimes, trust me, unfortunately I’ll be dead. No, I mean… within the next decade… there’ll be a fiscal crisis, financial crisis that’ll make your teeth rattle. And it won’t be just banks. It’ll be states that will go insolvent. I once put this question on a con bar exam, on constitutional law exam. Imagine a bailout fund for states. Would that be constitutional? I never heard the end of it. This did not end well. Let’s just say, I don’t know the answer, and I don’t think anybody out there knows the answer. There are huge constitutional problems. Do you really think we could have– I mean, the way this was done the last time around is Congress said, “Here’s 700 billion dollars. Go, Mr. Bernanke. Go, Treasury Department. Bail out banks, any banks.” And those guys sit there, and they say, “Actually, we wanna do some bailouts, but they’re not banks, they’re car companies. Would that be okay?” Well, the statute says no, but we say yes. So here we go. That was called TARP. Suppose we had a TARP for states. So the Treasury Department is sitting around there and saying, “Illinois, hey, bailout.” I don’t whether you’ve ever seen the South Park episode, the bailout one. Go look at it, go Google it. They have this chicken. In order to do their bailouts, they have a chicken and they lop the head off. And they have the chicken run around on this board where it says bailout, no bailout. That’s how they actually made those decisions. Would that be constitutional for states? Ay-ay-ay. And then, you have to ask yourself, you can make arrangements, and this is a real question. You can make arrangements with private banks or AIG, or General Motors to pay back. You can tell them, you will restructure yourself. You will call in new management. So your current directors, they’re out. New management in. You have a new CEO, congratulations. And you will repay these funds over the next five years in the following fashion. Could you do that to a state? Thank you very much. Your government is obviously incapable of governing its state. Out, our people in. And then, we’ll have some arrangements to pay. I don’t begin to see how that is consistent with the Constitution. But you may have to do it, and mind you, that is the way these things are done in Argentina and Nigeria. We’ll confront the question one way or the other. And in those circumstances, to then say, no, wait a minute, the Supreme Court will stand in the way and insist on the meticulous observance of the Constitution. No, it won’t. That’s why I’m saying… we have to rethink these things in a sort of political fashion. I understand the impulse of saying, let there be some rules and let the courts enforce them. Ain’t the way the world works. Yes, sir. – [Student] Sorry, we have a microphone system.
– Yes. – [Student] Sorry, Sean. – One, two. And then, I’ll cold call. Just kidding. – [Student] Thank you so much for your talk. It’s nice to have such a lighthearted person teach us a fairly… terrifying lesson. (laughs) A couple of questions ago, you answered in a fashion of, and spoke about running out of time, and what happens when we get to the end of this process, and I’m just wondering if you could clarify a little bit more about… what happens when we reach the end of this. What signifies that we have run out of time, or that we have fallen apart, in general. – That’s a terrific question, and I just don’t know what the answer is. I mean, I’ve just described one horror scenario, which is bankruptcy, fiscal crisis. And that is a scenario that is sort of some really severe outside shock to the system, where oops, all of a sudden, people sit up and say, now it’s really serious. And what would happen in that scenario, I can’t really tell. All bets are off. It depends on how things shake out, and which way exactly this unfolds. The other scenarios is sort of entropy. That is, things go on for a very long time, and we take one small step, and then another small step, and then yet another small step, and nobody thinks we’re going over the cliff, and people are just despairing, oh gosh golly. The alternative to the TARP for states is I don’t think they would do that. What would actually happen is… that the Bank of America, the CEO of the Bank of America would get a call from Janet Yellen or somebody like her and say… “You know, Mr. Moynihan, it’s a mighty fine bank you have there. We would hate to see anything bad happen to it, and we think it would be a splendid idea to lend some money to Illinois, don’t you think?” This is called fiscal repression. That’s how they always do it. It wouldn’t be the first time. That’s how we bailed out Mexico in the early 1990s. That’s how a lot of the deals last time around were done. That’s how it would be done the next time around, or could be done the next time around. We could do what… Argentina has in fact done, which is inflate the living daylights out of the economy, and try it that way. One way or the other, I think the fiscal aspects of this will dominate, because you just look at the trends, and just say, this can not go on, this can not last. I don’t know. So I would look… at what happens in the fiscal dimensions… is hugely, hugely important. And I think, in sort of non-fiscal terms, in political terms… it’ll actually be interesting to see how the institutions deal with the disintegration of the Affordable Care Act. I mean, that’s a real game-changer, right? There’s a federal statute, and all of a sudden, more than half the states say, no, thank you. Golly, I mean, how does the system respond to that, and can it bring itself to step back and say, “No, wait a minute, that didn’t work.” And so, now we have to figure out some other way to make it work, and hopefully some more sensible and better way to make it work. I just don’t know. But it’s those kinds of things that I would watch out for. – [Student] Thank you very much for coming and speaking with us this evening. Earlier in your talk, you seemed to be reluctant about administrative agencies that work within their own powers to fulfill a mandate, and Congress playing a bit more of a role in prohibiting particular actions and guiding them. And I’m curious to push you a little bit on the opportunity costs of the flip side of this federalist you present. I’m in particular, given either the apparent failure of either mass mobilization of these parties, patronage politics of these allocations, as well as, I think, generally the fact that often cited as a key component of American political decays are relative in autonomous federal agencies. I’m curious about what you see as the real alternative to the rise of the bureaucratic state. – That is a great, great question, and I’ve tried to struggle with it. My latest burbling about this is, it’s a long law review article written with a friend of mine, Ashley Parrish. It’s called “Administrative Law Without Congress.” And it goes, among other things, to the considerations you just mentioned. I’ve been very vocal about the downside of improvisation and updating statutes. There’s also a downside to, well, if not that, then what? I mean, now we’re just frozen in place, right? I’d say this. The reason why I’m a little– Two reasons. I mean, putting aside abstract considerations of no, the law is the law. I mean, you’ve already found out that’s not me. The reason why I’m a little nervous about giving in too easily to saying, look, Congress can’t do this, the courts don’t want to do it, and they shouldn’t be doing it, and so the agencies are the only game in town, are two. One of them is that… regardless of what exactly you think about the sources of Congress’s immobility or incapacity is… you don’t want to make it worse by giving them no incentive to legislate whatsoever. The cleanest example is the climate change example. So just to rehearse this, the Supreme Court decided the first case on climate change in 2007. That’s Massachusetts Versus EPA. And what they said there is that, what the court said, is that carbon dioxide and other greenhouse gasses are pollutants under the Clean Air Act, and therefore, the inference is that the EPA must now regulate them. This would have completely crazy consequences… and even the plaintiffs in that case didn’t want that. What the case was actually about was an attempt to mobilize, to spur congressional action. Because, okay, fine. We all sat around and did nothing about climate change. Now, we face this prospect of climate change regulation under the Clean Air Act. No, that does it. Now, Congress has to do something. And Congress just sits there and does nothing, and the administration plays this, frankly to my mind, cynical game of cranking unacceptable proposals into Congress, because they now know that the default outcome is EPA regulation. So you’ve diminished the capacity of the political system to do anything at all. I mean, of Congress. That’s one reason. And the other reason is that– Look, I don’t deny that there are urgent problems, and you want something done about them. And I put the debt first, so I get that. But on the other hand, there is this tendency… in our political debate, and it’s also in the law review literature on this to say something must always be done. And I want to leave room for the possibility, the constitutional possibility, I would add, is that in a system of separated powers and checks and balances, something, sometimes, nothing will happen. And when nothing happens… well, sometimes things don’t get worse. So it’s like, no, please don’t reform this. It’s bad enough as it is. So you know, okay. I want to resist this impulse of saying there must always be more… more intervention, more activity. The executive branch is the branch that never goes to sleep. It’s there 24 seven, and the wheels must keep spinning all the time. So I see the force of your question, and it’s very serious objection, and I don’t mean to belittle it, but there are intuitions that make me a little resistant to it. – [Student] Hi, I’m curious to hear your opinion on the extent to which, at least in the popular discussion of this question, it has become almost no longer a constitutional question to many people when they talk about whether the state should be doing something, or the federal government should be doing something. What they’re really talking about is the divide between the two parties, essentially. And so, I’m curious to hear your thoughts on the implications that has for our ability to remedy any of these problems when the discussion becomes so much polarized that it’s no longer really about the Constitution or about what’s most effective, but rather about this party divide. – Right, I have some very counterintuitive… notions about this. I believe that the ideological… let’s call it sectionalism. The fact that our partisan and ideological divisions now coincide to such a great extent with state lines, I believe that’s an opportunity, and not a danger to the system, so long as you deal with states that are homogeneous enough to be bribed into these federal schemes. Sorry, that’s a tendentious word, but incentivized, right? Nobody will talk about it. Nobody will take anything seriously, because ooh, ah, yeah. The system fails all the time. See education. See Katrina. See one public policy disaster after another, but people shrug and say, “Whatever, that doesn’t work and we can’t do anything about it.” And it’s only when the stuff becomes deeply ideological, and people are deeply divided, and some states say, “No, under no conditions will we cooperate with this,” that you can actually have a serious discussion about serious issues. And so, to put this somewhat differently… I get it that there are all these– I can’t tell you how many PoliSci books I’ve read about, nobody is a principled federalist. Everybody just wants to tailor federalism norms to their own ideological… preferences or policy preferences. I think that’s the genius of American government, right? Look, a federalism… principle… that serves nobody… would be dead. I mean, can you imagine a talk like this– I mean, I was born and raised in a federal system, I can assure you. A talk like this, an event like this would be inconceivable in Germany. It’s a federal system, but it doesn’t engage peoples’ interests. It doesn’t engage their imagination. Right? It’s only because federalism… and structural constitutional principles… become connected with political interests and incentives, they have any bite or force at all. And so that’s the genius of the Constitution to my mind. The structural principles… just as the First Amendment attract political constituencies, and that’s what makes the Constitution live and stay alive in our political discourse. I think that’s a great, great thing. And people do change their positions, right? You see this in all sorts of settings. The ACLU was in favor of religious freedom before it was against it. And they have lots of examples like that where people just change their minds about something that you think ought to be in lieu to a principle like the First Amendment. No, it isn’t. But that’s what makes the country not just– Well, let me just put it this way. That’s not a bad way of running a constitutional democracy. It’s a damn good way. – [Student] Hi, thanks for your talk. Kind of going off that question, I wonder. And I see your point about partisanship bringing attention to these issues at the state level, but I wonder if I could press you on whether or not they would arise as much if there was less partisanship in the federal Congress. For example, it passed a law about carbon regulation that wasn’t through statute, if these problems would arise as much in a less partisan divided atmosphere. – I think… here’s what I think bothers me about the atmosphere in Washington currently is… the shortening of peoples’ time horizons, okay? And here’s what I mean by that. So long as people in politics, I mean legislators and other political actors think golly, we won’t be running this show forever. And what, if we establish now this precedent, what would these other, pardon my French, bastards be capable of doing with this? Right? And that’s the nature of poli– I mean, that is what makes you cut deals, right? And some of the biggest enactments in American politics rest on that principle. The Administrative Procedure Act, I assure you, is that kind of a bargain. Golly, what would happen if the republicans come into power? Heaven forfend, that should be prohoibited, but because it can’t be prohibited, we the democrats now cut a deal with them. That sort of, here’s a foundation for the administrative state with some rule of law trappings. There’s your compromise, right? And it was every bit as bitter as anything else. It was real, real fight. And a lots of examples like that. And what’s happening now is that people behave like there is no tomorrow. And as if the other guys can never be in power. So there are lots and lots of articles and the law reviews from people who defend the Affordable Care Act itself, but who are very, very nervous about the precedent that this creates, and they’re being listened to. These are not academic scribblers. Nobody listens to them, right? And there are many examples like that. That sounds dispiriting. On the other hand… I’m not in the forecasting business, otherwise I’d be really rich. But you can imagine a scenario where the political constellation flips. Right? And the other guys, in this case, the republicans, invoke just one really, really bad precedent, and then let the other side have it, and then both sides coming to the table and say, oops, okay, it’s time to call off the dogs and cut a deal. So it’s not so much the ideological division that bothers me. It’s the short time– I mean, short term time horizons that impede people from doing anything sensible at all, even when it’s in their interest. That’s what worries me. – [Shannon] Unfortunately, that’s all the time we have for questions. Please join me once more in thanking Michael Greve for coming to the Ath. (audience applause) – Thank you all.

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