The State Negative Externality Problem

– December 16, 2020 Reading Time: 5 minutes

Last week, Republican attorney generals in 17 states filed a brief with the Supreme Court (SCOTUS) to support a lawsuit filed by the state of Texas seeking to invalidate the results of the presidential election in Pennsylvania, Georgia, Michigan and Wisconsin. SCOTUS refused to hear the case, which some Trump critics mocked and others labeled “seditious.”

Chief Justice Roberts may have thought that he was protecting SCOTUS from partisan politics but deciding not to hear a case can also appear political; the Democrats may well “pack the court” (enlarge SCOTUS so they can appoint their own justices) no matter what Roberts does. Like Roger B. Taney in his infamous 1857 Dred Scott decision, Roberts has missed a major opportunity to reunite the country by forging a common understanding of what states can, and cannot, do to each other. The Texas suit reminded Americans about a major weakness in our federal system, the ability of one or more states to impose costs on other states without their consent.

The Founders and Framers were well aware of specific instances of the imposition of negative externalities on other states and nipped them in the bud. In the Colonial and Confederation periods, for instance, Rhode Island served as a “money pump” by issuing gobs and gobs of fiat paper money. It earned seigniorage on those issues, which distorted the macroeconomy and raised the price level in all the New England colonies, which constituted a de facto common currency area. The Constitution eliminated that threat by prohibiting state governments from issuing fiat money. Unhappy about that, and some other stuff, “Rogue Island” ratified the Constitution in 1790, a year after the last of the other original states had, and only after being threatened with a trade embargo!

Other negative externalities created by state policies, however, remain largely unchecked. California, for example, makes America look bad because its policies lead to wildfires, rolling blackouts, and mass homelessness. California’s smoke and hopelessly liberal émigrés represent forms of pollution that other states have not yet seriously tried to combat, though perhaps they should.

Federal elections, especially for President, can also be used to impose costs on other states because Article I, Section 4 and Article II, Section 1 of the US Constitution leave the details of national election procedures to state legislatures and Congress, which generally has exerted only general oversight because it is cheap and convenient to piggyback on state elections.

It does not cost Texans much, and maybe even helps them, if, hypothetically speaking, California rigs local elections to ensure the victory of sundry morons and miscreants. Even the election of California’s House Reps and U.S. Senators is really none of the business of Texas, or any other state. Similarly, the unbelievable incompetence of election officials in upstate New York, land of my birth, is embarrassing but ultimately of little import to Texans, or even other New Yorkers.

POTUS, though, is different because of the tremendous power of that office these days. (Yes, we should roll back that power but I am not holding my breath.) To paraphrase “East Bound and Down” by Jerry Reed, there’s big problems in Texarkana if voter fraud takes place in Atlanta. The problem isn’t that voters in Texas are “disenfranchised” by voter fraud elsewhere — the Texans did vote, after all — it is that the Rule of Law is not upheld. That could lead — potentially, if the claims of Trump supporters are true — to a coup, i.e., the assumption of power by an usurper, in the Lockean sense of the term.

The Liberal Media is trying to slap down anyone who tries to discuss the election with ridicule (see this clip from Saturday Night Live), censorship, and repeated claims that there is nothing to see here, the same tactics used to bury the Biden family foreign financing scandal that broke just before the election. Turns out, though, that there is some fire to accompany that smoke. And just read the AIER’s website since March to see how the Liberal Media, using those same tactics of admonish, censor, deny, and mock, has been distorting Covid “news!”

That said, I don’t know if enough ballots got stuffed to swing the presidential election or not. Nobody does. It is not our job, it is SCOTUS’s job, literally, to sort it all out. In addition to reviewing the constitutionality of state and federal legislation, SCOTUS is supposed to adjudicate disputes between state governments as part of its original jurisdiction under Article III Section 2 of that pesky Constitution.

If SCOTUS refuses to adjudicate a dispute between states, few other options remain available. States can, and have, formed regional compacts to achieve goals like allowing interstate branching or cutting back on corporate subsidies. Such compacts are relatively easily negotiated, though, because all parties hope to be better off in the end.

When disputes are adversarial, if SCOTUS doesn’t successfully adjudicate, and Congress doesn’t provide relief, violence can, and has, broken out. Slavery, from “Bleeding Kansas” to the (un)Civil War, presents the most compelling instances but never forget the “Mormon Wars” or the Brooks-Baxter Affair, which pitted Democrats, Republicans, freedmen, carpetbaggers, and scalawags against each other in Reconstruction Arkansas. Several clashes between volunteer militia groups took place before President Grant interceded. And of course many of the nation’s Indian wars were sparked by the policies of state governments.

A smart, strong, John Marshall-type chief justice, as opposed to a weasley Taney-like one, would have used the Texas case to clarify the problem of state negative externalities vis-a-vis presidential elections. How many state and federal laws and constitutions can be violated before somebody has the authority to do something about it, and what, precisely, can be done? Since that remains unclear, both major parties have strong incentives to engage in competitive ballot box stuffing in the future. Where it will end, nobody knows, but look for 150 percent voter turnout as the few remaining checks against fraud disintegrate.

The problem will wax worse if the Left gets its way and eliminates the Electoral College in favor of popular election of the president. The latest in a string of New York Times articles and op eds on the matter can be found here. I kid you not, the premise of the piece is that it is only “fair” that bigger numbers win, so I don’t suggest putting the author in charge of the golf tournament, much less construction bidding!

Under the current presidential election system, fraud may have to occur in several states to flip the national result. Under a nationwide majority-type election, however, fraud in a single city or state could throw the election and, right now, apparently nothing could stop it so long as election officials assert that they did a good job, complete the almost meaningless recounts (which are not forensic but merely arithmetical and really besides the point!), and sign the right papers at the right time.

As I have mentioned before, I think we would be best off by randomly selecting the president because that would presumably lead to pressure to reduce his or her power. Barring that, it might be time to implement a national election system, just for POTUS and his or her running mate. It will be expensive and inefficient but if not easily corrupted it will be better than allowing political machines in our largest and worst-run cities to decide future presidential elections. Even the New York Times has to admit (I hope!) that bigger is not fairer if the big numbers are achieved by cheating.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.