Sunday, January 26, 2014

Can the Nation's Mayors Save the Federal Government from Itself?

The press has planted a phrase in our heads – dysfunctional government.  It’s hardly a phrase the man on the street would invent.  Yet, it has overtaken the economy as voters’ biggest concern.  Sounds like a problem we should try to solve, doesn’t it?

There’s a central truth to this issue that most are missing.  The government was designed to be dysfunctional.  If you were designing a system to function efficiently, would you come up with this?

Indeed, if one were to design a government system to function efficiently, one might choose the British Westminster system.  In the UK, elections can be called at irregular intervals to throw the bums out and the leader of the party who achieves a majority appoints the ministers (from among those elected) who run the bureaus of government.

No separation of powers, no process of advice and consent, no oversight committees or any of the other nonsense that clogs up the works in D.C.

In the midst of all this federal Sturm and Drang, many states have stepped into the breach.  And, why shouldn’t they?  In a nation that is geographically larger than all of Europe, it makes sense that we would have diverse cultures with different values.  Continental Europe certainly does.

Former Indiana Governor Mitch Daniels forged a new path by selling some of the state’s assets – including highways -- to pay down their debt and balance their budget without raising taxes.  It was a bold move.  What can we learn from Indiana’s experience?

In California, new/old Governor Jerry Brown chose a different direction.  He raised taxes on the wealthy to address the state’s budget issues. Unlike Indiana, California benefits from thriving entertainment and technology industries and geographically important seaports like Long Beach and Oakland.  A recovering economy has boosted state revenues and balanced the budget.  The very wealthy haven’t abandoned the state to move to Indiana or even to Arizona or Texas.

Texas pursues a different model.  A no-income tax state, it benefits from a booming energy industry and low costs of living and doing business.  Want to move from high-tax states like California, Illinois or New York?  No problem.  You’ll be welcomed. 

That Texas and California can pursue such different models and both thrive is an expression of the diversity of our economy.  There’s no need for the federal government to be involved.

Last June’s Supreme Court ruling allowed each state to make its own decision about gay marriage.  And, each state is doing so.  Easy?  For some yes and for others no.  But, the decisions made at a local level are more likely to reflect local values.

Mississippi will never have it.  Vermont always will.

Contrast that to the 40-year-old Supreme Court ruling on abortion.  Proponents and opponents are still marching in the streets. 

Enter the nation’s mayors. 

More than 80% of the population now lives in or near a big city.  So, our mayors are likely to have an increasing impact on society.

Many focus on economic development.  Denver has established a Business Incentive Fund that has attracted large national companies like Southwest Airlines to its environs.  Raleigh, NC has a well-educated workforce and has attracted financial companies like Fidelity, Credit Suisse and MetLife.  Seattle benefits from a resurgent Boeing and has also attracted technology companies like Amazon and Google to build new operations there. 

But, it’s not all about economics.  Cities may also serve as laboratories for social experiments. New York’s new mayor, Bill de Blasio, ran on a platform of taxing the rich to fund universal pre-K.  If he receives the necessary support of the state government, we’ll get to see if that experiment works before liberals in Washington take a crack at it.  Will Wall Street big shots relocate their HQ’s to White Plains, Princeton or Greenwich?  It will be interesting to find out, won’t it?

Seattle’s city government considers raising the minimum wage to $15 per hour.  Will the rise in incomes lift local businesses and cause the city to thrive or will it drive out local employers who reckon they can’t carry that burden? Will Seattleites be buying Tex-Mex from Taco Bell or from Burrito Box?

Conservatives point to the first principles of economic freedom as drivers of prosperity.  The elected governments of California and Seattle have chosen a different direction.  Liberals see the divergent incomes at the top and bottom of the economic ladder as a challenge they must address directly.  The elected governments of Indiana and Texas have chosen a different direction. 

I don’t know about you.  But, I would rather see how these many experiments work on a small scale before imposing them on the entire nation. 

The accretion of special interest lobbying and its impact on the federal taxes and regulations violate Americans’ sense of fair play.  The decentralization of American governance can only serve to make elected officials more responsive to the electorate and the results better aligned with our values and beliefs.  The folks in Washington will not endeavor to slow the momentum of our central government.  Change must be driven from outside the system and it’s more likely to be driven by political, social and economic forces at play in our states and cities than by those who pretend to represent us in Washington.



  1. Jason G. Ramage, MS, MBA, RBP
    Staff Scientist
    Top Contributor

    Interesting column John. I think the balance-of-powers design of our federal government is a good one, but I do agree there are advantages to the parliamentary system employed in the UK and Canada though. And I'm not sure I agree with Indiana's approach of privatizing highways - like schools, fire departments and police departments, there are some things that should be communal (dare I say, socialized?).

  2. John - Picking on Mississippi is not fair. Some of us love it here. We balance our budget every year and we have a Governor who is not afraid to stand up to the Feds. Bay Saint Louis is one of the top ten little cities in the US. Every travel agent will have the Mississippi Gulf Coast on their list.

    The most significant improvement we could make in the functioning of our Federal Government is to stop large campaign contributions. For example, every single member of the Senate and House Intelligence Committees has received donations from one or more companies that they regulate.

  3. @Charles. I wasn't picking on Mississippi or anyone else. I apologize if I offended you.

  4. Karen VanAssche
    Customer and Inventory Database Administrator at Detroit Public Library
    Top Contributor

    Interesting article, John. I have to agree with Jason on selling the highways. I can understand if they are just money makers for the purchaser/lessee, but there have to be other motives as well. The citizens of those areas may think it's a great idea now when it's bailing them out of debt, but what will they say in a few years when the tolls climb?

    It also seems that each state is taking advantage of its own industries and natural resources. Great idea! Of course, it just won't work everywhere since not every state has a thriving industry or natural resources that are in such demand at present as are the oil wells in TX. In the last hundred years the state of MI grew and prospered when our one industry thrived. When the economy tanked so did our industry and so did our economy. I like that these mayors are so creative and can't wait to see what Mr. Duggan does in Detroit. He just announced a reduction in property taxes to keep people from losing their homes and leaving the city. Of course, that also will result in a 13% drop in city revenues. It just keeps getting more interesting.

  5. Jason G. Ramage, MS, MBA, RBP
    Staff Scientist

    To Karen's point, I think part of the problem is politicians make promises they can't pay for in order to get elected, and then they're long gone before the reality sets in. Which is exactly why we find ourselves so far in debt.

  6. @Karen. Here's a fun fact: only 2.5% of the jobs in TX are in the energy industry.

  7. No.'s_law_of_headlines

    Less cheekily: what I don't see in your analysis, for a brief skim, is mention of how the Federal Reserve makes all of the economic plumbing run backward. Why do you think the President was on about giving loot to college students in the SOTU?

    Because, unlike a mayor, he can. The Fed inflates the currency, and DC pushes the frogskins down to state and local governments. Mayors can't do that. They have to work with actual tax revenues, which are scarce.

    I foresee scant reform until we take an honest and painful look at how backward things have been running in this country for decades.

  8. @Christopher. You are correct of course. I try to limit the length of these posts (and do so well as you can see). I removed a comment about the difficulty of deconstructing the Federal apparatus. The new budget compromise (Ryan/Murray) includes $3.2B in block grants which eliminate the need for the central govt. to administer a program. However that's just a drop in the bucket. Even if you could completely decentralize the government excluding Defense and other constitutionally assigned duties, you would still be stuck with a federal debt of 100% of GDP to pay off to say nothing of the unfunded liabilities. Isn't that why the Fed is inflating the dollar?

  9. Karen VanAssche
    Customer and Inventory Database Administrator at Detroit Public Library
    Top Contributor

    Jason, I agree wholeheartedly. The election process really needs an overhaul. It takes way too long and costs way too much money. The only people who actually profit from it are the media outlets.

    Interesting, John, so where is the rest of their money coming from? Gun sales? Cattle?

  10. @Karen. Agricutlure, Aerospace, Computer... Many Fortune 500 companies headquartered there, etc.

    It's a low cost, low tax state. That's where companies like to locate. BTW, there are three energy grids in the US: East, West and Texas. Guess which one produces the cheapest energy.

  11. Thomas V. (Vic) Cole
    Lead Systems Engineer at QinetiQ North Ameica

    Good article John. I think it's prudent to put control at the lowest possible level. Your point about multiple cultures is well taken. The states have always had different characters, different strengths and weaknesses. The union was intended as a federation of states, not a single entity. The constitution reserves select powers to the federal government - leaving everything else to the states. The original intent has been lost, and perhaps the bill of rights was part of the cause ... if the federal government can only do what the constitution says it can do, then why have amendments that prohibit congress from making laws in an area that isn't enumerated? It just opened the door to new interpretations. At root, sovereignty rests with the individual. Each of us has a responsibility to God, ourself, and our family. Our fundamental rights stream from these responsibilities. We surrender some of our sovereignty to local and state governments because we can do some things better collectively through specialization than each of us can do on their own. Local government surrenders some sovereignty to the state, and so it goes. Today's situation suggests that the national government is the sole repository of sovereignty for the states, local governments, and individuals. Not so. We are endowed by our Creator with certain inalienable rights. Pushback from the states, which have been blackmailed / bribed into submission, is increasingly unlikely. Insofar as pushback from the local government may motivate the states, this is a good thing. Not to be too provocative, but perhaps large cities could follow the ancient Greek model and declare themselves to be republics.

  12. Christopher Smith
    Senior Consultant at Deloitte

    I submit that the liabilities are really bad, but that training Americans to look past the mirror, toward DC to manage society is even worse.