Democrats and liberals increasingly seem to believe that it’s the federal government that needs to do almost everything. Sure, we take the point that it was federalism, states’ rights, that allowed racial segregation and Jim Crow, and thus, there’s rightly a certain suspicion of the idea. Yet in light of how the coronavirus crisis is playing out, it’s time for localism’s critics to reconsider.
As an example, Germany is well ahead of other nations on coronavirus testing. The reason?
The central government isn’t in charge of it at all. Each länder (think like a U.S. state) runs its own system, which has largely amounted to leaving it to a mixture of whatever private organizations, hospital labs, and so on wish to get involved. This has resulted in Germany having some 400 labs churning out the tests. Compare and contrast that with the American system, where the federal government got its first tests wrong and also refused to allow anyone to use any other test — even to the point of insisting that home testing kits were illegal.
This clear contrast shows why decentralized, market-based systems work and why state-planned economies don’t.
First, by having many different people trying to do something, we get many alternative methods being tried. Some will fail, yes, but we also wouldn’t get locked into the one failure being imposed upon all, as the federal government did originally with coronavirus tests.
Second, as famed economist and philosopher Friedrich Hayek pointed out, all knowledge is local. Someone who has just spent 40 years fighting their way to the top of the bureaucratic greasy pole is unlikely to have the details of lab testing at their fingertips. On the other hand, the people who do this every day for their livelihood are apt to have a pretty fair idea of how it’s done.
Which brings us to the latest mistake from that liberal side of the political divide, which keeps insisting that the federal government ought to be doing much, much more — despite all the proof of incompetence we saw from botched testing. My favorite example of this thinking comes courtesy of the American Prospect: “So first, we need to federalize unemployment compensation and hire enough people at the Labor Department to staff it.”
Yep, that’s right: Just as we’re not allowing people to travel and insisting that most workers can’t go into the office, apparently, we should start a massive round of interviews to hire for an entirely new federal bureaucracy. Given the glacial pace of government action, who knows: Maybe just 10 years from now, they might have even finished staffing the diversity office. Then, it’s on to the rest!
But it’s not just the idiocy of the actual proposal itself. It’s the foolishness of the underlying mindset that irks the economist in me even more.
Unemployment is a local phenomenon because someone is without work in that one place at this time. The idea that a single office trying to cover 330 million people could be built on the fly is silly enough, but it’s absurd to think that it would be more efficient than the current, more localized systems we’ve got now.
For those who support so-called “democratic socialism,” a little observation of how current international systems actually work would be a useful exercise. Notice how in Germany, local authorities deal with testing, and in Sweden, it’s the counties that handle healthcare, not the national government. Likewise, there’s Denmark and its local communities that impose the high tax rates, not the national government. Intrusive government only works at all if it is based, as Hayek pointed out, in that local knowledge.
Federalism works because there’s very little that the federal government can actually do. It is simply that bad at whatever it tries.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
