July 26, 2017

Nirvana’s Night Watchman: A Response to Adam Thierer

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The proper structure of government holds most rulemaking authority at the local level with strong state- and national-level controls on the use of that authority. This arrangement allows for the superior nature of local knowledge to inform the use of government power, mitigating unintended consequences while simultaneously providing checks on the abuse of that power.

In the 19th century, French economist and political philosopher Frédéric Bastiat identified that the core function of a classically liberal government is to protect each individual’s natural right to autonomy. The government’s authority to do so is derived from the aggregation of each individual’s right to act in defense of their person, liberty, or property.

This is the clearest conception of the “nirvana” government championed by free-society scholars: a night watchman state that is restricted solely to the protection of individual rights and whose authority explicitly cannot be used to favor one individual at the expense of another. This perspective focuses more on preventing abuses of government authority than on using that power to accomplish socially desirable ends (wherein “socially desirable ends” automatically implies “those ends desired by whichever faction currently has control of government power”).

Idealized Distribution of Government Authority

This view raises the question: How can such an ideal government be implemented in the real world? Who are these angels who would disinterestedly apply the authority of government? James Madison argues in Federalist No. 10 that because human governments must use humans to govern, such enlightened institutions cannot exist. Unenlightened self-interest and the associated interfactional power struggles will always plague social organization. As Bastiat observed, “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

It is precisely because of this tendency that the structure of government authority matters. If ideal government were possible, then arguments over federalism versus preemption would be immaterial. The question then becomes a practical one: How should the structure of government authority be arranged to resist manipulation?

I argue that the best structure of government places rulemaking authority at the most local level possible, whereas higher levels of government are primarily charged with ensuring that local rules do not infringe on individual rights. This arrangement allows each individual to have the greatest influence over their governance—the key virtue of the concept of democracy—but at the same time it safeguards against the primary shortcoming of democracy, unrestrained mob rule.

Under this arrangement, the national government is constitutionally limited and only serves to defend against foreign and domestic threats to liberty. The domestic threats in this case are actions by state and local governments that violate the rule of law or principles of individual autonomy. Specifically, the national government has no authority to enact legislation; it can only say “no” to laws or regulations passed by lower governments.

This may seem like an unnecessary restriction on the national government’s ability to enact “good” policy. Nobel laureate Friedrich Hayek, however, clearly articulated the value of this tradeoff: “We shall never prevent the abuse of power if we are not prepared to limit power in a way which occasionally may prevent its use for desirable purposes.” Moreover, this approach does not prevent municipalities or states from addressing social problems. It only ensures that the highest governmental authority—the level that cannot be overruled—is solely focused on the core function of government: protecting individual liberty.

The Effect of Distance

This structure of government authority addresses the inherent tradeoffs between local rules and national rules. Localized rulemaking is likely better tailored to solve the social problem in question because the policymakers are closer to the affected individuals and, therefore, are in better position to benefit from their local knowledge. (This assumes that local, state, and national policymakers all have equal capacity in crafting laws and regulations—an assumption that is not likely to be fully correct but one that simplifies the discussion for my purposes here.) The proximity means that local rules may be less likely to create unintended consequences.

Local rules, however, might have a greater tendency to be captured by special interest groups. Interfactional competition for government-granted privilege may be lower at the local level simply because of the smaller population affected by local rules. Conversely, because competition for government favoritism increases at the state or national level, the congestion in lobbying activities might decrease the granting of privileges. Evidence of this can be found in political “logrolling”, which lobbyists and legislators use to get around the congestion.

The increased distance (both literal and figurative) between local factions and state or national government officials may also limit their ability to exert influence. This means that shifting policymaking from the local to the state or national level may simply empower those local factions that have greater capacity to bridge the distance. Consequently, those people who are least able to voice their concerns will be the most likely to suffer adverse effects of nonlocal rulemaking.

In short, there is no guarantee that rulemaking at the state or national level will be less likely to grant privilege to well-connected factions. It may simply be the case that the beneficiaries change depending on the government authority in charge of the policy.

The Advantages of Local Rulemaking

George Mason University economist Alex Tabarrok states, “No one goes to the barricades for efficiency,” but the size of the barricade is also important to a person’s decision on whether it’s even worthwhile to charge. Distance is a highly effective barricade: It’s far easier to rage against unjust policies in a city council meeting than at the state capital. Thus, state and federal rules may be more durable than local rules. This is especially true when economist Charles Tiebout’s concept of “voting with your feet” is considered: If local rules are too onerous and are resistant to change, then the local government will lose the long-run competition for taxpaying residents to other municipalities. As a result, local policymakers have a stronger incentive to respond to the concerns of their residents.

In addition, local rulemaking may inhibit the ability of factions to pursue concentrated benefits, the costs of which are paid for by the distributed taxpayers. First, individuals likely have better information on local tax issues than on state or national tax issues: Because they are more likely to affect the outcome, they have more incentive to pay attention. Second, the distributed costs from providing government-granted privilege would rise more quickly because of the smaller population of local taxpayers. Considered together, this means that local policymakers would have greater difficulty hiding the cost of the privileges they grant.

How Do We Go from Here to There?

It would be quite difficult to arrest the inertial slide toward greater centralization of power that has been going on for the past 150 years. That said, reemphasizing the right of individuals to have a voice in their governance—asserting the value of democratic institutions—could be one of the first steps toward achieving this ideal of locally focused governance.

Also important would be efforts to promote the idea that activities contained wholly within the borders of a given region should be solely subject to that region’s rules. Doing so would prepare the way for arguments in favor of local regulations over state or national rules and would align policies more fully with the “laboratories of democracy” concept.

It bears mentioning that to enable high-quality rulemaking at the local level, local governments must somehow increase their capacity for good governance. Agglomeration economies or economies of scale could be offered as logical explanations for the current situation where the federal government assumes regulatory authority over states or local governments, but even with these advantages the lack of local knowledge may still result in less effective regulations. A solution would need to combine the strengths of each approach.

An obvious counterargument to more locally-focused, decentralized governance is that cross-border or intertemporal social problems would be more difficult to solve in the absence of a centralized authority. However, as Hayek implied, the damage done to present and future governance institutions by solving social problems via dictatorial decree is greater than the increased cost of solving the same problems through the more difficult means of persuasion. Moreover, Nobel laureate Elinor Ostrom illustrated that problems that may appear theoretically intractable to economists are actually fully capable of solution if the right institutions for communication exist.

Conclusion

Because a government of impartial and omniscient angelic regulators is impossible, the next best structure of government power is one that invests most authority at the local level with federal checks on the use of that power. This supports the idea of federalism over that of local preemption. The important assumption, however, is that doing so leads to greater freedom for trade and better-tailored regulations. There may be real-world situations in which reasonable arguments can be made in favor of state or national preemption of local regulations, if doing so expands the scope of trade because of privilege-granting by local regulators.

Postscript: A Digression on “Economic Efficiency”

Adam Thierer makes an excellent point in the lead essay that launched this colloquium: arguments in favor of determining the primacy of governmental authority on the basis of economic efficiency are insufficient. Furthermore, the common understanding of this argument represents a muddying of economic terminology.

Economic efficiency depends on the capacity for mutually beneficial trade, which itself depends on the institutions governing the interaction. Thus, it may be said that a given economy under a given institutional structure has reached a Pareto optimum—is fully efficient—even when institutional change could result in greater opportunities for mutually beneficial trade.

In other words, the definition of what constitutes economic efficiency is dependent on the assumed institutional structure. Therefore, economic efficiency cannot properly be used as a litmus test for which institutions are appropriate, because the determination of economic efficiency is itself dependent on the institutional structure of the economy.

Proponents of the “economic efficiency” argument for reforming institutions most likely mean that greater gains from trade are possible under alternate institutional structures. While this is essentially true, it should be more explicitly understood as a statement that increasing the potential for trade enhances human welfare. That is, freedom-advancing institutional changes necessarily expand the frontiers of societal production and consumption.