NARRATOR: Thanks for joining this episode of the No. 86 lecture series, which continues the conversation in the 85 Federalist Papers about the role of Federalism. Today’s episode features Professor John O. McGinnis, who is the George C. Dix Professor in Constitutional Law at Northwestern University School of Law. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. PUBLIUS: Why federalism? We’re joined today by Professor John McGinnis, who discusses the benefits of federalism, including how state governments serve as a check on the federal government, and unexpected benefits from competition. Should judicial review apply to the structural provisions of the Constitution? What is the state of federalism today? JOHN MCGINNIS: Federalism is the division of power between the federal government and the state government. What we mean by division here is that the federal government only has limited, enumerated powers. And as far as the federal Constitution is concerned, states have all powers that the Constitution doesn't take away from them and give to the federal government, or just prohibit their exercising. So the states from the point of view of the federal Constitution, have much closer to plenary powers than the federal government. Which is one of carefully enumerated powers. As a result, there are two effects of federalism. One is that federalism means that the states are a check on the federal government. They're a political check, they elect political actors who can speak, sometimes now sue, the federal government. The clash of federal and state authority is important in two different ways. One, it's important in the sense that states have different authorities from the federal government. And that means that states are continually important in people's lives, and that means these state institutions still have allegiance from their citizens and can in some sense stand uP to the federal government. They can sue the federal government. They can do a variety, take a variety of actions. Indeed, they maintain state courts that are open and ultimately can hear federal Constitutional questions against the federal government. So that institutional check is very important. Another important check is that they're a different locus of political actors. That state governors are potentially competitors to senators. Potentially they could competitors to the current president. They can run for president. And so that's also a very important area, that they have their authority and they demonstrate it by competence in state affairs. And by doing that, their ability to be political actors in a different realm creates a check on the political actors in the federal realm. PUBLIUS: Can you tell us more about how we should think about the federal ‘realm’ versus the local ‘realm,’ as you just mentioned? Are there certain powers that are more appropriate for one versus the other? JOHN MCGINNIS: So ideally government should be as small, as limited a jurisdiction, as the public good it provides. The reason for that is that you want to have people who are benefiting from the public good pay for the public good. Now, everyone benefits from national defense and it really won't work at a local level. But then a lot of public goods where a museum or something like that, or a bridge in a particular locality. The benefits are localized. And so one wants to pay for it in that area. You'll get government that is more competent in the sense that it will take funds from those who are benefiting it. You might get more accountable government in that people are likely to pay more attention to public goods and how well they're provided in their particular area, than to look at some national question. That's at least the hope. Ultimately, the way to think about the federal government, under the original Constitution, was that it was to provide public goods that the states were less good at providing. What I mean by public goods are goods that markets cannot easily provide, because of free riding problems. A classic example might be defense, for instance. And that the family can't provide. So that's why you have public goods in the first place. And for the same reason that markets aren't very good at providing defense, providing defense for the entire United States isn't very well provided for by the states. Because the states have free rider problems. In other words, they'd like to provide the least amount of money and get the most amount of defense. But if all the states do that, you're going to end up with very little defense of the realm. And that's why the public good of defense needs to be provided at the national level. Another kind of public good is the absence of regulations that interfere with trade on the basis of localism. Because one of the great truths of economics is that advantage of trade. And states, on the other hand, may think that they can do better by limiting a trade. And so that's, again, why the public good of the absence of these barriers is best done at the national level. So one way of thinking about the enumerated powers in the federal government is they're really all about public goods that can't be as successfully done at the state level. That's why they were elevated to the federal level, and that's why there needs to be government to do them. And finally, given that there are public goods that are better produced at the state and local government, it creates a more competent government. And it creates a government also that is a more competitive government. PUBLIUS: Can you tell us more about this competition? Companies sounds like something private actors do, not government. Is it beneficial? JOHN MCGINNIS: I think one of the greatest virtues of federalism, and I don't think it was wholly even understood by the founders but is implicit in their structure, is a creation of a market for governance. One can think of the states as in competition. We observe that in regular markets. Companies try to act leanly, try to not overspend. They try to meet the needs of their consumers. Otherwise, the consumers are going to go elsewhere. Now, to be sure, states are in an imperfect structure of competition. There's a lot of inertia for people to go from one state to another. Nevertheless, it's still a competitive structure. One observes that regularly today, that governors are very concerned about putting up their tax rates too high, of doing some useless boondoggle that will require greater public spending, because people are able to exit. So if they tax too much, don't provide good services to their people, people can relatively easily exit from one state to another. And so that's the secret, I think, of that paradox. I think it's one of the great innovations in the Constitution, is to realize a structure in which two governments protect liberty better than one. Still very imperfect, but always the question is compared to the alternative. Compared to the unitary government, compared to having the federal government pay for all of the public goods in the United States, there'd be much less competition. And that's one of the greatest virtues of federalism. PUBLIUS: What are some other benefits of having state governments and the federal government compete for power? Does it give individual citizens any additional power? Or create additional accountability for governments to their citizens? JOHN MCGINNIS: Well, so there are two kinds of accountabilities well known in the social science literature, called exit and voice. So voice allows you to vote politicians out. There's a difficulty with that way of disciplining politicians. One's vote is very unlikely to make a difference. There's something called rational ignorance. That may be odd to hear a professor talk about why it's rational to be ignorant. But it's true, it's less likely that your vote is going to make a difference even in a relatively local election than probably being hit by lightning. So people necessarily will invest less in information. And so it's a very imperfect way of creating accountability. Most people are interested in politics because of the spectacle of it, rather than actually gaining a lot of information. Contrast that with another way of accountability, which we might call voting with your feet. So you hear about some better conditions in another state or indeed in different locality within a state. There it's quite different because you can capture the benefits of those better conditions by actually taking an action yourself. Voting, even if you cast a brilliant vote, it doesn't assure, makes no difference to whether or not the event's going to happen. But if you actually find the place that's well run, with better conditions than the place you're living, you capture those benefits by moving. Now to be sure there are costs of moving, but they're overwhelmed by the actual benefits you gain. So that's why voting with your feet is very important. And why it's important to, in our system of federalism that we have as the federal constitution guarantees the ability to move from state to state in a continental republic. It also brings together understanding of one of the purposes of the first amendment. The First Amendment is important because it allows you to learn the conditions of other places in a continental republic, and those allow for more effectively accountable government at the state, and indeed local, level. PUBLIUS: Can you tell us more about other factors that have had a significant impact on how we understand the Commerce Clause and Federalism? JOHN MCGINNIS: Sure. I think is very important to understand that the amendments, the 17th and 16th amendments were important, at least in realistically setting the stage for weakening limitations of the commerce clause. First of all, the 16th amendment just gives the government a lot more money. Couldn't bribe states to do things. We didn't have much money to do it. On the 17th amendment, it means that senators were no longer elected by their state legislatures. Of course state legislators you might think would be jealous at least somewhat jealous of their prerogatives. That might be exaggerated sometimes state legislatures might like just to have a kind of cartel among the states and live an easier life and not compete. I'm not sure how much difference that made, but it probably made some difference in setting the stage. Then we had really a collapse of the commerce clause in economic matters. I think the better idea of understanding the commerce clause is that it really is about interstate commerce, about trading among the states, about instrumentalities. About three things, trading among the states, anything that is traded there, items that go from state to state through trade. Instrumentalities of the states, transportation, railroads and things of that sort that go through the states, that's part of interstate commerce. And certainly it would also include a navigation among the states. Those are the essential aspects of commerce. What it was not thought to include was simply a manufacturer, even if the manufacturer had a fax in different states, even you manufactured part of the products in different states. That was thought to be largely internal to the state. Chief Justice Marshall famously said in Gibbons v Ogden that the interstate commerce clause concerned more states than one. That was also a constraint on the commerce clause. First you had to have commerce trading, and it had to concern more estates than one. That actually suggests that that much of economic regulation would be state regulation. It was just regulating how someone manufactured something, including what labor relations he had. That was an important limitation on the federal government. That ultimately declined, there became a sense that it was the responsibility of the federal government to a police working conditions. I think the first, the greatest cause was child labor. Child Labor was thought to be an evil. There was a case in which the federal government tried to constrain child labor, and that was thrown out as essentially being an attempt to control labor, and therefore not commerce under the commerce clause in the case ruled Hammer v Dagenhart. Ultimately that case was overruled and that struck me as a crucial turning point. It was crucial turning point because while I think it may well have been a good idea, they did not pass a constitutional amendment. And Roosevelt, when he was elected, had the choice essentially to try to press for a constitutional amendment and he decided not to, although he was very, very powerful at the time, and I think might well have succeeded. Of course, the alternative was to change the constitution through appointing a lot of judges. Roosevelt quite incredibly and according to our understanding in the modern era, appointed essentially the whole supreme court. Appointed these justices according to his view of the constitution, which had really very little enumerated power and really so ultimately changed the court. PUBLIUS: Discussion of these cases brings up the role the courts should play. Should judicial review be available for the structural provisions of the Constitution, and for Federalism? JOHN MCGINNIS: There's a whole school of thought that judicial review should only be available for rights. The reason is that essentially the political process will take care of questions of structure. In other words, governors will fight for their federalism rights. Presidents will fight for their separation of powers' rights. The judiciary should be available for the people who are not as present in politics. In my view, that's very wrong. It's wrong because I don't see a very large distinction between structure and individual rights. Ultimately the structure's about protecting individual rights. As described that we have a market for governance that protects, it makes people easier to enjoy liberty by moving from state to state. All of those are very important rights. Also, it protects against the overweening federal government. All of these are essentially the rights of the individual. Secondly, there's nothing in the constitution, as an originalist matter, that suggests there are some separate provision for judicial review that only goes to constitutional rights, and doesn't seem to reach structural rights. Indeed, that would be bizarre, because, of course, if you thought that there was a judicial review in the constitution of 1789, that was really almost entirely about the structure of the constitution, or predominantly about the structure of the constitution. It'd be a very odd view, I think, to take historically. Then finally I think it's just not the case that governors are always going to protect the structure of federalism, or political actors in the states. State actors, you have to understand, some of the times they won't like competition. It's well known in economic life that even market actors sometimes like cartels. It's an easier life. You don't have to compete. Well, so why shouldn't some state actors like the fact that the federal government's taking some access of competition away from them? Even if that's bad for the people. There's a very imperfect connection between the interests of state politicians and the structure that it's being designed to protect. The structure isn't being designed to protect them, it's being designed to protect and enhance the liberties of the people. Their interests may not be exactly the people's interest. It's just, I think, a huge mistake to give up judicial review of federalism or indeed any structural provision. I think the wrong idea that there's a congruence of interests between the politicians and the citizen. PUBLIUS: A final question. Since the Founding almost 250 years ago, the federal government has grown in power and the state governments have shrunk. Where are we today with Federalism? JOHN MCGINNIS: Given the interpretation of the commerce clause as at least in the economic areas, essentially plenary authority, maybe more important, the spending clause is allowing the government to do an enormous amount to bribe the states to be part of a government program. There’s very little left that the federal government cannot do. And so that's a tremendous constraint on state authority. Nevertheless, the structure of the states means effectively there are a lot of things to states do, do. And so there still is substantial competition among the states. So federalism, I think is too strong to say that federalism has been destroyed. It's been weakened. The question today I guess is, do we need to think of how to revive it, how far it can be revived in that way? I see there's some green shoots that at least in the area of non economic authority, the federal or the supreme court is saying that the government is not one of plenary powers. So it's neither completely dead as a constitutional matter, nor as a practical matter. NARRATOR: Thank you for listening to this episode of the No. 86 Lecture series: Continuing the Conversation in the 85 Federalist Papers about the proper structure of government. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for lectures and videos on Federalism, Separation of Powers, the Judiciary and more. Thanks for listening. See you in class! Transcript [for YouTube - no speaker names/verbatim] Thanks for joining this episode of the No. 86 lecture series, which continues the conversation in the 85 Federalist Papers about the role of Federalism. Today’s episode features Professor John O. McGinnis, who is the George C. Dix Professor in Constitutional Law at Northwestern University School of Law. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. Why federalism? We’re joined today by Professor John McGinnis, who discusses the benefits of federalism, including how state governments serve as a check on the federal government, and unexpected benefits from competition. Should judicial review apply to the structural provisions of the Constitution? What is the state of federalism today? Federalism is the division of power between the federal government and the state government. What we mean by division here is that the federal government only has limited, enumerated powers. And as far as the federal Constitution is concerned, states have all powers that the Constitution doesn't take away from them and give to the federal government, or just prohibit their exercising. So the states from the point of view of the federal Constitution, have much closer to plenary powers than the federal government. Which is one of carefully enumerated powers. As a result, there are two effects of federalism. One is that federalism means that the states are a check on the federal government. They're a political check, they elect political actors who can speak, sometimes now sue, the federal government. The clash of federal and state authority is important in two different ways. One, it's important in the sense that states have different authorities from the federal government. And that means that states are continually important in people's lives, and that means these state institutions still have allegiance from their citizens and can in some sense stand up to the federal government. They can sue the federal government. They can do a variety, take a variety of actions. Indeed, they maintain state courts that are open and ultimately can hear federal Constitutional questions against the federal government. So that institutional check is very important. Another important check is that they're a different locus of political actors. That state governors are potentially competitors to senators. Potentially they could competitors to the current president. They can run for president. And so that's also a very important area, that they have their authority and they demonstrate it by competence in state affairs. And by doing that, their ability to be political actors in a different realm creates a check on the political actors in the federal realm. Can you tell us more about how we should think about the federal ‘realm’ versus the local ‘realm,’ as you just mentioned? Are there certain powers that are more appropriate for one versus the other? So ideally government should be as small, as limited a jurisdiction, as the public good it provides. The reason for that is that you want to have people who are benefiting from the public good pay for the public good. Now, everyone benefits from national defense and it really won't work at a local level. But then a lot of public goods where a museum or something like that, or a bridge in a particular locality. The benefits are localized. And so one wants to pay for it in that area. You'll get government that is more competent in the sense that it will take funds from those who are benefiting it. You might get more accountable government in that people are likely to pay more attention to public goods and how well they're provided in their particular area, than to look at some national question. That's at least the hope. Ultimately, the way to think about the federal government, under the original Constitution, was that it was to provide public goods that the states were less good at providing. What I mean by public goods are goods that markets cannot easily provide, because of free riding problems. A classic example might be defense, for instance. And that the family can't provide. So that's why you have public goods in the first place. And for the same reason that markets aren't very good at providing defense, providing defense for the entire United States isn't very well provided for by the states. Because the states have free rider problems. In other words, they'd like to provide the least amount of money and get the most amount of defense. But if all the states do that, you're going to end up with very little defense of the realm. And that's why the public good of defense needs to be provided at the national level. Another kind of public good is the absence of regulations that interfere with trade on the basis of localism. Because one of the great truths of economics is that advantage of trade. And states, on the other hand, may think that they can do better by limiting a trade. And so that's, again, why the public good of the absence of these barriers is best done at the national level. So one way of thinking about the enumerated powers in the federal government is they're really all about public goods that can't be as successfully done at the state level. That's why they were elevated to the federal level, and that's why there needs to be government to do them. And finally, given that there are public goods that are better produced at the state and local government, it creates a more competent government. And it creates a government also that is a more competitive government. Can you tell us more about this competition? Companies sounds like something private actors do, not government. Is it beneficial? I think one of the greatest virtues of federalism, and I don't think it was wholly even understood by the founders but is implicit in their structure, is a creation of a market for governance. One can think of the states as in competition. We observe that in regular markets. Companies try to act leanly, try to not overspend. They try to meet the needs of their consumers. Otherwise, the consumers are going to go elsewhere. Now, to be sure, states are in an imperfect structure of competition. There's a lot of inertia for people to go from one state to another. Nevertheless, it's still a competitive structure. One observes that regularly today, that governors are very concerned about putting up their tax rates too high, of doing some useless boondoggle that will require greater public spending, because people are able to exit. So if they tax too much, don't provide good services to their people, people can relatively easily exit from one state to another. And so that's the secret, I think, of that paradox. I think it's one of the great innovations in the Constitution, is to realize a structure in which two governments protect liberty better than one. Still very imperfect, but always the question is compared to the alternative. Compared to the unitary government, compared to having the federal government pay for all of the public goods in the United States, there'd be much less competition. And that's one of the greatest virtues of federalism. What are some other benefits of having state governments and the federal government compete for power? Does it give individual citizens any additional power? Or create additional accountability for governments to their citizens? Well, so there are two kinds of accountabilities well known in the social science literature, called exit and voice. So voice allows you to vote politicians out. There's a difficulty with that way of disciplining politicians. One's vote is very unlikely to make a difference. There's something called rational ignorance. That may be odd to hear a professor talk about why it's rational to be ignorant. But it's true, it's less likely that your vote is going to make a difference even in a relatively local election than probably being hit by lightning. So people necessarily will invest less in information. And so it's a very imperfect way of creating accountability. Most people are interested in politics because of the spectacle of it, rather than actually gaining a lot of information. Contrast that with another way of accountability, which we might call voting with your feet. So you hear about some better conditions in another state or indeed in different locality within a state. There it's quite different because you can capture the benefits of those better conditions by actually taking an action yourself. Voting, even if you cast a brilliant vote, it doesn't assure, makes no difference to whether or not the event's going to happen. But if you actually find the place that's well run, with better conditions than the place you're living, you capture those benefits by moving. Now to be sure there are costs of moving, but they're overwhelmed by the actual benefits you gain. So that's why voting with your feet is very important. And why it's important to, in our system of federalism that we have as the federal constitution guarantees the ability to move from state to state in a continental republic. It also brings together understanding of one of the purposes of the first amendment. The First Amendment is important because it allows you to learn the conditions of other places in a continental republic, and those allow for more effectively accountable government at the state, and indeed local, level. Can you tell us more about other factors that have had a significant impact on how we understand the Commerce Clause and Federalism? Sure. I think is very important to understand that the amendments, the 17th and 16th amendments were important, at least in realistically setting the stage for weakening limitations of the commerce clause. First of all, the 16th amendment just gives the government a lot more money. Couldn't bribe states to do things. We didn't have much money to do it. On the 17th amendment, it means that senators were no longer elected by their state legislatures. Of course state legislators you might think would be jealous at least somewhat jealous of their prerogatives. That might be exaggerated sometimes state legislatures might like just to have a kind of cartel among the states and live an easier life and not compete. I'm not sure how much difference that made, but it probably made some difference in setting the stage. Then we had really a collapse of the commerce clause in economic matters. I think the better idea of understanding the commerce clause is that it really is about interstate commerce, about trading among the states, about instrumentalities. About three things, trading among the states, anything that is traded there, items that go from state to state through trade. Instrumentalities of the states, transportation, railroads and things of that sort that go through the states, that's part of interstate commerce. And certainly it would also include a navigation among the states. Those are the essential aspects of commerce. What it was not thought to include was simply a manufacturer, even if the manufacturer had a fax in different states, even you manufactured part of the products in different states. That was thought to be largely internal to the state. Chief Justice Marshall famously said in Gibbons v Ogden that the interstate commerce clause concerned more states than one. That was also a constraint on the commerce clause. First you had to have commerce trading, and it had to concern more estates than one. That actually suggests that that much of economic regulation would be state regulation. It was just regulating how someone manufactured something, including what labor relations he had. That was an important limitation on the federal government. That ultimately declined, there became a sense that it was the responsibility of the federal government to a police working conditions. I think the first, the greatest cause was child labor. Child Labor was thought to be an evil. There was a case in which the federal government tried to constrain child labor, and that was thrown out as essentially being an attempt to control labor, and therefore not commerce under the commerce clause in the case ruled Hammer v Dagenhart. Ultimately that case was overruled and that struck me as a crucial turning point. It was crucial turning point because while I think it may well have been a good idea, they did not pass a constitutional amendment. And Roosevelt, when he was elected, had the choice essentially to try to press for a constitutional amendment and he decided not to, although he was very, very powerful at the time, and I think might well have succeeded. Of course, the alternative was to change the constitution through appointing a lot of judges. Roosevelt quite incredibly and according to our understanding in the modern era, appointed essentially the whole supreme court. Appointed these justices according to his view of the constitution, which had really very little enumerated power and really so ultimately changed the court. Discussion of these cases brings up the role the courts should play. Should judicial review be available for the structural provisions of the Constitution, and for Federalism? There's a whole school of thought that judicial review should only be available for rights. The reason is that essentially the political process will take care of questions of structure. In other words, governors will fight for their federalism rights. Presidents will fight for their separation of powers' rights. The judiciary should be available for the people who are not as present in politics. In my view, that's very wrong. It's wrong because I don't see a very large distinction between structure and individual rights. Ultimately the structure's about protecting individual rights. As described that we have a market for governance that protects, it makes people easier to enjoy liberty by moving from state to state. All of those are very important rights. Also, it protects against the overweening federal government. All of these are essentially the rights of the individual. Secondly, there's nothing in the constitution, as an originalist matter, that suggests there are some separate provision for judicial review that only goes to constitutional rights, and doesn't seem to reach structural rights. Indeed, that would be bizarre, because, of course, if you thought that there was a judicial review in the constitution of 1789, that was really almost entirely about the structure of the constitution, or predominantly about the structure of the constitution. It'd be a very odd view, I think, to take historically. Then finally I think it's just not the case that governors are always going to protect the structure of federalism, or political actors in the states. State actors, you have to understand, some of the times they won't like competition. It's well known in economic life that even market actors sometimes like cartels. It's an easier life. You don't have to compete. Well, so why shouldn't some state actors like the fact that the federal government's taking some access of competition away from them? Even if that's bad for the people. There's a very imperfect connection between the interests of state politicians and the structure that it's being designed to protect. The structure isn't being designed to protect them, it's being designed to protect and enhance the liberties of the people. Their interests may not be exactly the people's interest. It's just, I think, a huge mistake to give up judicial review of federalism or indeed any structural provision. I think the wrong idea that there's a congruence of interests between the politicians and the citizen. A final question. Since the Founding almost 250 years ago, the federal government has grown in power and the state governments have shrunk. Where are we today with Federalism? Given the interpretation of the commerce clause as at least in the economic areas, essentially plenary authority, maybe more important, the spending clause is allowing the government to do an enormous amount to bribe the states to be part of a government program. There’s very little left that the federal government cannot do. And so that's a tremendous constraint on state authority. Nevertheless, the structure of the states means effectively there are a lot of things to states do, do. And so there still is substantial competition among the states. So federalism, I think is too strong to say that federalism has been destroyed. It's been weakened. The question today I guess is, do we need to think of how to revive it, how far it can be revived in that way? I see there's some green shoots that at least in the area of non economic authority, the federal or the supreme court is saying that the government is not one of plenary powers. So it's neither completely dead as a constitutional matter, nor as a practical matter. Thank you for listening to this episode of the No. 86 Lecture series: Continuing the Conversation in the 85 Federalist Papers about the proper structure of government. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for lectures and videos on Federalism, Separation of Powers, the Judiciary and more. Thanks for listening. See you in class!