Federalism, Economics, and Katrina--Posner

Much of the debate over the response to Hurricane Katrina has centered on the question of the division of responsibilities among the different levels of government--federal, state, and local. Concern has been expressed that for the federal government to have played a more aggressive role, for example by taking command of all response efforts and perhaps placing them in the hands of the regular army (as distinct from the National Guard, which is state rather than federal although the President is authorized to "federalize" it in situations of war, insurrection, or civil disturbance and thereby place it under federal military command), would have violated the tenets of federalism and perhaps specific provisions of the Constitution allocating powers between federal and state (including local) government, and specific statutes such as the Posse Comitatus Act of 1878, which limits military participation in law enforcement. Issues of federalism cannot be resolved solely by reference to economic criteria. The reason is that, the Revolution having been waged by states (the former British colonies) linked in a loose confederation, the Constitution, while tightening the federation, recognizes the states as quasi-sovereign entities. Even if it would be efficient to do without states and have as centralized a government as France has, this could not be done without amending the Constitution, and indeed perhaps without replacing it with a completely new Constitution adopted in a constitutional convention. Nevertheless, it is of course possible to analyze the economizing principles of federalism, and that is what I shall try to do in this posting. From an economic standpoint, federalism is a scheme of decentralized governance, designed to optimize the provision of government services. In the governmental as in the private business setting, there are disadvantages to a strictly hierarchical ("U-form"--unified or unitary), as distinct from a more loosely coupled or "horizontal," method of organization ("M-form"--multidivisional). With strict hierarchy, information flows from the bottom of the enterprise up to the top echelon of management, and commands flow back down based on decisions made at the top. Inevitably, information will be filtered and otherwise lost or garbled on its way up, and as a result the top managers will perforce base their decisions on information that is frequently incomplete or inaccurate; and likewise commands will tend to be misunderstood on their way down the successive links in the chain of command. The centralizing of decisionmaking power will reduce competition, diversity, and flexibility; mistaken decisions will be more costly because they will bind the entire enterprise; and mistakes will be frequent because the top managers will not be given a full array of alternatives to choose among because their subordinates will filter out most of the alternatives on the way up in order to spare the top managers from being overwhelmed by information. The other side of this coin, which is illustrated by the regime that preceded the Constitution--namely the Articles of Confederation, which created a very loose-knit federation of the states to conduct the Revolutionary War, and the inadequacies of which led directly to the Constitution--is that the lack of a central authority can result in suboptimal performance. Each division of the firm (or state or other regional or local government in a federal system) will tend to ignore the effects of its actions on the other divisions; each will be reluctant both to incur costs that benefit the other divisions (external benefits) or to avoid imposing costs on the others (external costs). Centralization is a way of internalizing costs and benefits throughout the enterprise by coordinating the divisions and making sure they are pulling together. Since there are both costs and benefits to centralization, we can expect that usually the best organization will be one that has elements of both central control and divisional autonomy--one that has some hierarchy but not too much, and divisions that are only semi-autonomous. And so we observe in our federal system as a result of the provisions of the Constitution and, in particular, their (loose) interpretation by the Supreme Court. The states are allowed a considerable degree of autonomy in matters of taxation and regulation (including licensure), administration of schools and prisons, highways and other infrastructure, criminal law enforcement, etc., but Congress, the Supreme Court, and the President have a considerable override power. Congress is empowered to regulate interstate and foreign commerce; and the Supreme Court, by interpretation of the commerce power, has forbidden the states to impose tariffs and other impediments to interstate trade and travel, even if Congress fails to act. Because the states have a degree of autonomy, they function, much as the divisions of a software or pharmaceutical firm would, as laboratories for (social) experimentation. Policies invented in one state, if successful, can be copied by others. Also, people can sort themselves between states in accordance with their preferences; the right to move to a different state supplements voting power in controlling the action of government officials. In the case of response to emergencies, one of the factors I discussed earlier--the effect of hierarchy on information flows and command responses--figures prominently, along with (depending on the scale of the emergency) externalities. The officials closest to a problem have the best information and also can act most quickly on it. We wouldn't be well served by having (only) a Federal Fire Department, so that in the event of a local two-alarm blaze the local fire chief would have to inform Washington and get permission to fight the fire. This is the point made by those who believe that the Federal Emergency Management Agency, even under competent leadership, should not be in charge of emergency responses to catastrophes. But not all catastrophes are local. What is more, given mobility of responders, it does not make sense for every locality to invest in achieving self-sufficiency in responding to an emergency, regardless of the scale of the emergency. Suppose, as in the case of Hurricane Katrina, that the catastrophe simultaneously engulfs a large number of cities and towns in several states. Insofar as a coordinated response is optimal, and given transaction costs, which are especially high in an emergency situation, it doesn't make much sense to leave the response to state and local governments. Each state will seek to optimize its response to the damage caused it, and each locality to the damage caused that locality, disregarding the costs and benefits of its actions to the other states and localities. Moreover, as in a military situation in which one doesn't know where the enemy will attack, an effective response to an emergency requires the maintenance of reserves that can be deployed to the threatened spot, and those reserves have to be held and controlled centrally. I conclude that while state and local government can and should be given exclusive responsibility for responding to run-of-the-mill local emergencies, the federal government should have standby responsibility for regional and (of course) national emergencies, as well as for emergencies that, as in the case of the flooding of New Orleans as a result of Katrina, wreak destruction on a scale that it would not have been efficient for the local government to prepare to meet. If you tell a city that it will receive no assistance in the event of a disaster, however great, it will overinvest in preparing to respond to disaster. Suppose for the sake of simplicity that the country has only two cities, that the cost of responding to an average disaster is 1 and to a cataclysm is 20, but that the probability that there would be two cataclysms at the same time is close to zero. Then if the federal government refuses to assist in local disasters, no matter how destructive, the two cities may incur a total cost of prevention of 40, whereas if the government invests in providing the necessary backup capability, the total cost of prevention will fall to 22 (1 + 1 + 20). If this analysis is correct, then it was the federal government's responsibility to prepare to assist in an emergency of the scale of Hurricane Katrina. Such preparations would have been consistent with an optimal allocation of responsibilities between central and local government.

Comments

[N.E.Hatfield]

Jack, Ahh Yes, the Times. I gave up paying attention to American Media years ago. It usually takes it five or six attempts to get the story straight and sometimes not even then. The BBC, Economist, London Times, Manchester Guardian, Figaro, Der Speigel do a much better job.

[Babak Zaker]

Would somebody please leave a link to the NY Times article? I am still sceptical - no matter how complete the proposal, it is still a proposal. There is no reason the federal government can't run an agency relevant only to one region. What is being proposed - an organisation between the levels of state and federal - poses many question of oversight. Let's say that Texas, Louisiana, and Mississippi formed a regional body to deal with disaster relief. Would the proportionally richer Texas pay proportionally more than its neighbours? If so, what is its incentive to join? Who gets to hire the agency head? Who can fire her? If there is a decision between building a new shelter in Corpus Christi or Gulf Port, who makes the call? Answering these questions is the purpose of the federal government. A federal government can (theoretically) determine which place needs the most resources, and deploy them there without worry of offending a local governor.

[Babak Zaker]

Don't forget the Financial Times, Le Monde, and Le Monde Diplomatique.

[Jahed]

This has nothiung to do with the Dr. Becker's present post. It just surprises me that someone thinks they know Adam Smith's catalogue better than Dr. Becker. It borders on disrespect in my opinion. Do you realize the man probably taught Smith to students for years upon years, and knows Smith's material inside and out, and any other possible direction there is to know it? Why don't you contribute something before you think you can call out someone like Dr. Becker, retards.

[Jack Sprat]

I am still sceptical - no matter how complete the proposal, it is still a proposal.

No, when I noted that Governor Pataki's proposal is substantially complete I did not mean he had almost finished drafting his proposal. I meant what he had proposed is substantially complete in its implementation.

9 STATES IN PLAN TO CUT EMISSIONS BY POWER PLANTS, August 24, 2005, Wednesday
By ANTHONY DEPALMA (NYT); Metropolitan Desk
Late Edition - Final, Section A, Page 1, Column 6, 1421 words. It was a front page article because the cooperative regional solution was the first of its kind. In other words, neither Becker nor Adam Smith has written on it.

[N.E.Hatfield]

Jack? What's this got too do with the price and availability of "beans and rice" in La., Ms. and Al.? And not too mention, the rest of the country?

[Jack Sprat]

"Jack? What's this got too do with..."

As you do not read American media, we cannot discuss what is therein reported. I have no idea what beans and rice or your hatred of the corrupt American media has to do with cooperative regional solutions being an alternative to either purely local or purely federal solutions. You are off-topic.

[Jack Sprat]

Stephen,

I do not think that Congress needs to pass a federal law. A collection of states in a particular region could accomplish the same thing by pooling resources, sharing information, and creating the requisite bureacracy (via their state lagislatures). In other words, instead of getting California to agree to pass a federal law that affects only Georgia and Alabama and Florida, for example, the state legislatures of Goergis, Florida, and Alabama could come up with a regional cooperative solution, as Governor Pataki has done in the Northeast with regard to nuclear power. Call it a regional self-reliance regime if you like.

It seems that taking the issue to Congress only exposes the bill to undue lobbying pressure and other pitfalls limned by public choice theory.

[N.E.Hatfield]

Steven, Sounds like a marketing tool for the private insurance industry. Talk about windfalls in terms of profits. We already know about the problems of a privatized health insurance program. In all probabilty, it will end up the same way. There is just too much room for abuse to allow the private sector to control it.

[Matthew Johnson]

N.E. HACKFIELD: "There is just too much room for abuse to allow the private sector to control it."

LOL. Yeah, maybe we should federalize EVERYTHING THEN. That way, there will be NO CORRUPTION.

[GARYGECH]

I think we should encourage being prepared at all levels.

The State and County officials should meet to discuss emergency preparedness.

I think spending money on first responders, (i.e., Doctors, nurses, emergency technicians) is probably a better idea than spending money on the national guard. In a time of emergency, you want to be starting I.V.'s and triaging people, not aiming guns and worrying so much about looting.

Obviously, the city government has to be prepared not only to uphold the law, but provide the spiritual energy for people to help each other.

[N.E.Hatfield]

Matt, God forbid! I trust a bureaucrat about as much as I trust a businessperson. Oh, BTW, you know what a businessperson is a synonym for? A liar, cheat, thief, fraud and scroundrel. The Romans knew it when they coined the phrase, "Caveat Emptor"!

[Matthew Johnson]

No, Hackfield, the Romans were putting the burden on buyers to investigate the quality of the goods they sold, because buyers often accuse sellers of fraud and ask for a refund after they have gotten their use out of a product. For example, reading the newspaper, then claiming the ink was defective and smudged on your hands, so asking for a refund.

[MJ]

Sorry, I meant "they bought".

[Businessman]

Setzt als CA fort;)

[Anonymous]

مركز تحميل

[Anonymous]

thanks for your post.perhaps you will like abercrombie

[Anonymous]

بنت الزلفي

[Anonymous]

Thank you, you always get to all new and used it
شات صوتي

[Anonymous]

Thank you, you always get to all new and used it
ÿ¥ÿßÿ™

ÿØÿ±ÿØÿ¥ÿ©

[Anonymous]

Give please. Think of life as a terminal illness, because, if you do, you will live it with joy and passion, as it ought to be lived.
I am from Mexico and now teach English, tell me right I wrote the following sentence: "The las cruces police academy website offers information about basic law enforement officer training for recruits of the las cruces police department, city of las."

Thank :-D Rodney.

[Anonymous]

thanksss
ÿ¥ÿßÿ™ ŸÖÿµÿ±
--
دردشة مصرية

[Anonymous]

ÿØÿ±ÿØÿ¥ÿ©
___
صور

[Anonymous]

دردشة برق

دردشة الخليج

[Anonymous]

Hello everyone. Cheerfulness, it would appear, is a matter which depends fully as much on the state of things within, as on the state of things without and around us.
I am from Liechtenstein and , too, and now am writing in English, give please true I wrote the following sentence: "Pronto has the murray feiss mrats coventry castle bevelled bathroom mirror in aged tor and other mirrors in our furniture section."

Thank you very much ;). Pictures of bathroom mirrors.