In a recent essay, Harvard economist Martin Feldstein listed some reasons we might expect the U.S. to have higher rates of economic growth than other industrialized countries. I agree with most of his list -- high entrepreneurialism, world-class research universities, a good work ethic -- but there’s one factor I don’t buy. It’s this: “The U.S. has a decentralized political system in which states compete. The competition among states encourages entrepreneurship and work effort and the legal systems protect the rights of property owners and entrepreneurs.” Unfortunately, we’re probably at the point where American federalism does more to hinder than to help growth.
One problem is that people simply aren’t that mobile any more. Moving across state lines has declined by about 50 percent from the average over the period 1948 to 1971. This has happened for a variety of reasons, including the aging of America, the rise of dual-income couples, and the fact that some regionally based job attractions, such as automobile manufacturing in Detroit, are no longer so significant. The net result is that state governments don’t have to worry as much about dissatisfied residents moving out. These days that is either harder to do, or people are simply less interested in making a fundamental change. The competitive checks and balances on state governments are correspondingly weaker.