The Price of Federalism

Abstract

The Price of Federalism by Paul E. Peterson.

The Price of Federalism. By Paul E. Peterson. Washington, D.C.: The Brookings Institution, 1995. 239p. $36.95 cloth, $15.95 paper.

The world of federalism is not heavily populated with big ideas or ambitious theories. The federal system is complicated territory with thousands of governments, organized in various ways and interrelated vertically and horizontally. Studies of federalism have more often captured this complexity in metaphors--most famously, Grodzin's "marble cake"--than in theories of any scope, power, or influence. It is therefore fairly remarkable that The Price of Federalism is distinguished by its attention to important ideas.

In this comprehensive work, Paul Peterson aims to paint a big picture--to describe the federal system in bold relief, to trace its significant changes, to account for this evolution, and to evaluate it. Appropriately, Peterson chooses to focus on the bottom line-the funds that the several levels of government expend to build infrastructure, educate children, ensure public safety, guarantee income, provide adequate food, housing, and health care, and to supply other goods and services. (The focus on funding does not do justice to regulation, the influence of which cannot be adequately measured by government expenditures. But Peterson's picture is big enough already.)

To analyze these expenditures, Peterson collapses all domestic spending for the last 40 years into the standard economic categories of distribution and redistribution, the former supporting goods and services that are provided without regard to individual or geographic need and the latter intended for recipients with need. By employing these categories, Peterson connects his work to the powerful positive and normative frameworks of public finance, which are one source of this book's big ideas.

As Peterson tries to understand and evaluate the changing roles and responsibilities of the governments that make up the federal system, he pits the dominant ideas of public finance economics against the dominant ideas of institutional political science. The ideas of economics comprise a "functional" theory, and the ideas of political science comprise a "legislative" theory. (The legislative label is a nod to the origins of the new institutionalism in the formal study of legislatures.) Peterson hesitates to call these sets of ideas theories, and in the conclusion chooses to call them perspectives: nowhere in the book are they specified in the kind of detail that theory formally requires.

Critics will surely pounce on Peterson for failing to explicate his perspectives further. Proponents of the legislative perspective will argue that the functional perspective lacks sufficient detail to yield the predictions with which it is credited. They will say that the legislative perspective, fully explicated, can do a better job. My own view is that Peterson's level of specification is about right. By painting his theories in somewhat broad strokes, Peterson is able to bring together the important ideas that scholars and practitioners ought to be debating. Had he opted for more detail and formality, his focus would have narrowed and the potential significance of this work might have been lost.

Armed with important ideas, Peterson takes the reader on a provocative and panoramic tour of modern federalism. His first observation is probably his most important. He shows how the several levels of government have been decidedly sorting out their responsibilities--redistribution shifting upward to the national government and distribution shifting downward to the locals. These are troubling developments from a legislative perspective. They occurred during a time that disadvantaged groups, traditionally in favor of redistribution, gained substantial control over local governments and individual members of Congress, traditionally bent on distribution, gained influence in the national government. The functional perspective, however, has no problem with these developments: the sorting out reflects the disparate competitive pressures that the different levels of government face. What is more, the sorting out is appropriate; each level is increasingly doing what it does best.

Of course, this is not the whole picture. As Peterson thoughtfully shows, the functional view is incomplete. Changes in Congress had much to do with the sorting out of the 1980s. Congressional committee membership clearly influenced the extent to which the national government decided to aid the different governments that depend on it for redistribution. Political parties at the state level and political machines (or their remnants) in rust-belt cities made a difference in local spending priorities. But these political effects may be on the margin. As Peterson also demonstrates, politics has not prevented the "race to the bottom" in which states competitively cut welfare benefits to avoid becoming "welfare magnets." This phenomenon is better explained by the functional or economic perspective.

Peterson concludes his work by asking how the major trends he has examined serve the public interest. Are we paying too high a price for the political and economic benefits of federalism, or are the costs plainly worth bearing? Generally, Peterson approves of the direction in which federalism has been going. He agrees with the standard view of public finance that distribution is most efficiently pursued by local governments competing to meet the demands of diverse people with different needs. And he argues that the variation in services from one locale to the next is declining--and growing more acceptable. Peterson also agrees that the national government has the greatest capacity to redistribute. For this reason, he denounces the proposal before, the current Congress to delegate welfare responsibility (with grant money) from the national government to the states. This, he argues, will serve mostly to erode welfare benefits.

Critics will surely dislike pieces of the big picture Peterson has put together. They may argue that his evaluation of the states underestimates their economic and political strength or their capacity for innovation in the field of welfare. They may disagree with the specifications of his many statistical analyses, which sometimes have weaker results than his interpretations suggest. (See the state spending analysis, for example.) But this book is likely to generate debate about issues of far more consequence: how best to understand America's most distinctive political institution and how best to judge where it is going.