Legal Commentary

I ignore this blog for just a couple of weeks, and what do I find gets posted in my absence? Brian Galle's and Joseph Leahy's working paper defending Susan Rose-Ackerman's thesis that state politicians do not innovate because they are risk-averse and seek to free-ride off of each other's innovations. Being this blog's resident federalism fan, I have mixed feelings about their paper. On one hand, the paper is admittedly an outstanding contribution, confirming my suspicion that all of the best work on federalism is done by tax and environmental law folks: Galle, being a tax guy, predictably integrated the best economics (e.g., Besley & Coate, Breton, etc), while all of the constitutional law folks are still parsing the punctuation of some squishy preemption opus from the SCOTUS.

On the other hand, sometimes I think that federalism gets a lot of unfair knocks from scholars who compare federal regimes to some idealized "socially optimal" world and, unsurprisingly, find that federalism falls short of their imaginary ideal. Galle and Leahy, I think, fall prey to this tendency when they conclude that "state and local governments ... are unlikely to innovate in all instances at the optimal social level" (page 7). To which I respond: So what? Neither will Congress.

In particular, why do Galle & Leahy assume that federal politicians are immune from the "information externality" that allegedly afflicts non-federal politicians? Rose-Ackerman's claim is that non-federal politicians will not innovate because they are all hanging back like penguins at the edge of a glacier, waiting for some hapless penguin to dive in first and reveal the presence of some lurking predator below. No one wants to be the first mover when they can reap the benefits of other first mover's experiment by being a copycat -- make a big splash, catch some fish -- without the risk of being eaten if the innovation flops.

But why is not Congress just another gaggle of penguins, so far as the information externality is concerned? Federal politicians act as individuals when they innovate, staking out areas of policy expertise through hearings and bills, trying to win visibility on an issue so that they can run (for instance) for President. Think of Estes Kefauver and organized crime, Edward Muskie and environmental law, Abe Ribicoff and auto safety. The information externality afflicts these politicians every bit as much as it afflicts governors. If it turns out, for instance, that environmental regulation is a bust with voters, then the Senator who championed it will look bad, making it risky for any federal politician to get out in front on the issue. If, by contrast, environmental regulation is successful, then it will be easy enough for rivals to jump on the bandwagon after success is proven in the field.

So how exactly will federalization of any issue ever internalize any information externality? Why are not members of Congress, governors, mayors, etc., all a bunch of penguins -- some of whom are less risk-averse than others and jump off the ice berg first, in hopes of catching more fish?