Legal Commentary

Paul Krugman has recently articulated one of my darkest fears -- that the recession might be used as a pretext to destroy federalism in infrastructure spending. (Okay, I concede that I have a few items higher up on my list of worries -- but, being a federalism nut, that worry about federalism's demise ranks abnormally high). According to Krugman, states' cutting back on spending during a recession indicates that they behave in economically inefficient ways. The solution he recommends is (among other things) "federal funding of state- and local-level infrastructure projects." He asks: "Why should investments in infrastructure, which will serve the nation for decades, be at the mercy of short-run fluctuations in local budgets?"

Krugman is surely correct that states cannot perform the function of economic stabilization: Pump priming is a national public good just as is national defense. So, of course, the feds ought to amp up their share of non-federal infrastructure spending during a recession. But Krugman seems to be making a more general point -- that, even in normal times, infrastructure ought to be heavily subsidized by the feds.

This strikes me as an economically and politically odd position. There is a vast theoretical and empirical literature suggesting that centralization of infrastructure that does not have significant interjurisdictional spillover effects is a recipe for inefficient over-spending. The reason, of course, is that the national budget is, from each individual congresspersons' point of view, a public good: Each congressperson can win credit from their constituents for cutting the ribbon on federally funded infrastructure without incurring proportionate blame for the resulting increase in taxation and/or deficits at the federal level. The result is "universalism" -- a norm of mutually voting for everyone else's pork in return for similar consideration for your own pork. The causes of universalistic back-scratching in Congress were outlined long ago in Barry Weingast, A rational choice perspective on congressional norms, 23 Am. Pol. Sci.Rev. 245 (1979). The theory has since been refined by economists (see, e.g., Benjamin Lockwood, Distributive Politics and the Costs of Centralization, Rev. Econ. Stud. 313 (2002)) and empirically confirmed by political scientists (see, e.g., Jonathan Rodden, Reviving Leviathan: Fiscal Federalism and the Growth of Government, 57 Int'l Org. 695-729 (2006)).

Krugman's a Nobel laureate: He surely knows this literature. So what is he thinking? Why would he urge normalizing a practice -- centralized infrastructure spending -- that could turn the United States into the notoriously over-paved Japan, where the LDP smothers the nation in concrete to buy political support for their corrupt machine? Why does he not even give a nod to the vast literature, familiar since the Musgraves' finance textbook, suggesting developmental spending ought to be decentralized?

Could it be that, in pressing a pro-spending ideology, Krugman strategically suppresses evidence and theory contrary to his agenda? If so, what a waste of a Nobel laureate's talent! We've got plenty of journalistic flacks on the NY Times' op-ed page: Wouldn't it be nice to have a pro lay out the arguments fairly?