The Federalism Wars: The Covid-19 Battle; A Footnote to “The Hegemon’s Handbook”*

The Federalism Wars: The Covid-19 Battle

America’s Constitution divides sovereignty between the Federal government and State governments. It creates a power-sharing system – a federation with both centralized and fractionalized powers. Like any joint undertaking, success requires a fine balance, a give-and-take. It isn’t quite “All for one and one for all” … and it also isn’t “Every sovereign for itself.” The American Constitutional system is a melding of the two. The Federal government is empowered to lead, but each State is given both the power to make decisions internally and the ability to take a leadership role with the consent of other States. That flexible sharing-of-power is what has made America the most successful nation in human history.

The Constitution attempts to balance national and local interests by explicitly granting a litany of enumerated powers to the Federal government – those necessary to effectively govern a melting pot of religious, ethnic, racial and international populations – while reserving all other powers to the States. The Founding Fathers believed that preserving States’ Rights was so important that they repeated the reservation dichotomy in the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” Preserving States’ Rights and individual liberties in order to prevent the arrogation of power by the Federal government is so important to American democracy that, in proposing the Tenth Amendment, James Madison openly embraced the redundancy: “Perhaps words which may defined this more precisely than the whole of the instrument now does may be considered as superfluous. I admit that they may be deemed unnecessary: but there can be no harm in making such a declaration.”

The sharing and blending of power and authority between Federal and State governments therefore is clearly delineated, is it not?

Unfortunately …, not.

The clarity intended by the Constitution has been tested again and again …, by the issues arising from slavery in the early 19th Century and thereafter by the push-pull of power-hungersharing and partisanship. In most instances, the Federalism Wars have pitted those who want a strong Federal government centered on commerce, finance and mercantilism – initially the urban, internationalist followers of Andrew Hamilton – against those focused on local interests and committed to divesting control from the Federal government in order to exercise power locally – initially those who adhered to agrarian principles advocated by Thomas Jefferson.

The Federalism Wars have waxed and waned over the past 230 years, with the most significant changes to the power-sharing arrangement being triggered by the the Great Depression. FDR’s New Deal legislation – and the Supreme Court’s acceptance of a Constitutional need for more centralized rule-making – led to an expansion of Federal regulatory power at the expense of States’ Rights. To reach that rebalancing, the Court adopted a broad interpretation of the Commerce and Supremacy Clauses, granting the Federal government the power to regulate intrastate economic activities that affect interstate commerce. In an internationalized economy, America requires centralized economic leadership.

That interpretation of Constitutional Federalism, with a variety of tweaks, has endured to this day. The question is whether it should be expanded or curtailed, or remain the same, in light of Covid-19.

Although the Federal government has a monopoly over trade and defense, it does not have a Constitutionally-enumerated power to dictate health policy. In a health crisis, with 48 of America’s 50 States being contiguous, what happens in any one State affects the others. State governments as a group therefore can be successful only by working together and relying on Federal support. A virus does not respect State borders … or international ones for that matter.

That necessary coordination has not yet happened with respect to Covid-19. The result has been inconsistency and, at times, paralysis. The Federal government has not taken a leadership role, demarking the steps that the States ought to take in order to save lives and preserve their common economy. Neither have the States cooperated with each other. Instead, policies have been adopted and decisions made State-by-State, creating a variety of uncoordinated mandates. The Federal government has pressured States to “do whatever it takes” to prevent the spread of Covid-19 and, at the same time, to preserve economic activity, but this has been an impossible two-step without agreement on a path forward – which requires “compromise,” a commodity sadly lacking at both the Federal and State levels. The absence of a coordinated response to Covid-19 has created a sinkhole for Federal and State budgets. Although the Federal government has partnered with the Federal Reserve to print inject over $6 trillion into the economy, neither has offered direct aid to State governments, all of which are fighting a battle against the medical and economic ruin being wrought by Covid-19. The Center on Budget and Policy Priorities forecasts that States will lose $650 billion over the next three years due to Covid-19. Different from the Federal government, States don’t own money-printing machines and are rapidly running out of resources. They have therefore asked for Federal aid.

Which brings us to the current Federalism Battle: Should the Federal government bailout State governments? Is America’s Constitutional democracy based on “All for one and one for all,” requiring the Federal government to team-up with local governments? Or should the States be left to their own economic devices? Or, perhaps, should centralized control by the Federal government be extended to health crises? [Centralized control appears to have served China quite well in the current crisis.]

A long line of Democratic policymakers has advocated increasing Federal power in America’s Constitutional system. For the past 80 years, the resulting aggregation of power in the Federal government has been resisted by Republicans. The Republican Party has fought for States’ Rights, for decision-making to be left to each State in determining what is best for its citizenry, and for the country to be macro-managed and not micro-managed so that States can operate without being told by the Federal government what to do or how to do it. Those positions have not changed.

Senate Majority Leader Mitch McConnell (R-Ky) recently suggested that it would be best for States adversely affected by the Covid-19 crisis to declare bankruptcy. He opposed a Federal bail-out. “I would certainly be in favor of allowing States to use the bankruptcy route,” he said. “[T]here’s no good reason for it not to be available. My guess is their first choice would be for the Federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of…. There’s not going to be any desire on the Republican side to bail out State pensions….” In taking this position, McConnell was giving full throat to the partisan political position that Democratic States should be treated as “takers” because they receive handouts from Republican States to subsidize their welfare and pension obligations. President Trump reinforced that position by tweeting: “Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as an example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help?” The reality is the opposite. The four top Federal “giver” States are New York, Massachusetts, New Jersey, and Connecticut, all Blue States, while three of the four biggest Federal “taker” States are Kentucky, Mississippi, and West Virginia, Red States. For every tax dollar New York gives to the Federal government, it gets back $0.91. For every tax dollar Kentucky (Senator McConnell’s home State) puts in, it takes out $2.41. Treasury Secretary Mnuchin nevertheless added his support to McConnell’s position, saying that States that had poorly-managed budgets before the pandemic should not be rescued by the Federal government. “This isn’t just going to be a federal bailout of the States,” he said. [Bankruptcy is the solution that the Federal government recently authorized for Puerto Rico.]

The argument on the Democratic Party side is that State declarations of bankruptcy won’t fix either the national economy or State and local economies. To the contrary, they would exacerbate the problems of both. Senate Minority Leader Schumer (D-NY) warned that McConnell’s idea “would lead to hundreds of thousands of vital State and local government employees … being fired or furloughed,” adding to the more than 30 million American workers already out-of-work. New York Democratic Governor Cuomo highlighted a document being distributed by McConnell’s office entitled “Stopping Blue State Bailouts.” In calling for an end to partisan politics, he said: “It’s not a question of red versus blue states…. We’re one nation. It’s red, white and blue.”

In times of national emergency, survival depends on consensus and compromise. Covid-19 is a national emergency. National emergencies can be successfully addressed only by “All for one and one for all.” Federal and State governments, and Republican and Democratic lawmakers, must share leadership. Each State must coordinate with other State governments and look for guidance and support from the Federal government … and the Federal government must provide that support. If not, as Benjamin Franklin said, “We must, indeed, all hang together or, most assuredly, we shall all hang separately.”

A Footnote to “The Hegemon’s Handbook”

A Wall Street Journal article on April 20th, “China Rolls Out Pilot Test of Digital Currency,” reported on China’s adoption of a digital Yuan. As addressed in prior TLRs, China is implementing a step-by-step approach to challenge America’s dominance of financial technology and of the global payments system. Its ultimate goal is to replace the US Dollar as the global reserve currency. A digital Yuan is a giant step towards realizing that goal. A digital US Dollar would have been the appropriate countermeasure. Such a countermeasure does not appear to be on America’s agenda.

Finally (from a good friend)

*┬® Copyright 2020 by William Natbony. All rights reserved.

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