Edward L Glaeser

Give power to cities, states

By Edward L Glaeser
April 21, 2011

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‘WELCOME TO divided government,” said John Boehner, when discussing last week’s uneasy budget deal. Yet even as it threatens the chaos of government shutdowns and legislative sclerosis, divided government on the federal level offers the best hope for fiscal responsibility — and a chance at better government as well.

To resolve America’s fiscal issues, our national politicians need to become statesmen — by forging a compromise that raises taxes and reins in entitlements, while continuing the federal investments, like education, that reap the highest returns. Yet a smaller national government also creates an opportunity, and a need, for states and localities to assume more policy leadership. We should be rethinking not just the budget, but also which public policies should be federal and which should be local.

Boehner seemed to suggest that if the Republicans had all the marbles in Washington, America’s fiscal worries would end. But a passion for fiscal rectitude rarely survives one-party federal power. During the Republicans’ dominance in Washington from 2001 to 2007, real federal spending increased by 25 percent, and the federal debt rose from 56 to 64 percent of GDP. In the Democratic years from 2008 to 2010, the debt rose from 69 to 93 percent of GDP. America last saw serious fiscal restraint between 1995 and 2001, when Bill Clinton faced a Republican Congress, and the debt shrank from 67 to 56 percent of GDP. Division makes painful reforms possible in Washington by enabling each party to blame the other for the unpopular parts of any deal.

Still, the objective should not just be less government, but better government. That can happen if states and cities fill some of the space vacated by the Feds. Last week, President Obama suggested that less federal transport spending will make “our roads crumble and our bridges collapse,” but almost all roads and bridges should be local responsibilities. At the local level, the people who benefit from public projects also pay for them. That creates discipline. When a Massachusetts town votes on building a new school, taxpayers are weighing benefits and costs, not just writing a check based on national taxes imposed at some later date.

Despite the many advantages of local government, public spending has been nationalized. In 1913, 59 percent of all government spending was by localities, 12 percent by states and 29 percent by the US government. Today, the federal government is responsible for 68 percent of public spending.

This centralization had some salutary effects; New Deal programs imposed more honest bookkeeping on localities. But in some cases, federal largesse has followed the fad of the moment, whether urban renewal or highways, and dragged cities along. In all cases, the federal government’s power to spend other people’s money leads to arguments over who gets what rather than what should be done. States and localities aren’t free from these problems, but since local government has direct responsibility for providing good schools and short commutes, voters know what to demand.

This shift is puzzling because local governments have improved dramatically over the past century — Boston has gone from corrupt Curleyism to capable, innovative Meninoism — but it’s hard to see such similar progress in Washington. While local governments face their own fiscal troubles, these reflect current tax codes and voter expectations. Today, we expect larger tax bills from the federal government and smaller ones from our states and towns, but we could become accustomed to the opposite. We certainly did in the past.

To its critics, Ronald Reagan’s “New Federalism’’ was a pretext for cutting federal help to lower levels of government. Today, people rightfully fear that devolving Medicaid to the states will just mean less aid. A new New Federalism must be selective — and not an excuse to scale back federal education support or gut aid to the needy. Localities are never well-positioned to address social justice issues; if they try to redistribute, businesses and the rich just leave. The federal government should be involved in education because workers migrate over state lines, and because education is the best means of making our nation fairer and stronger.

A local government renaissance wouldn’t obviate the need for serious leadership in a divided Washington. The spirits of Clay and Webster must rise and inspire compromise on tax rates and entitlements. But for American government to really get better, belt-tightening in Washington must be accompanied by increasingly active, innovative, and effective local governments.

Edward L. Glaeser, a Harvard economist, is the author of “The Triumph of the City.’’ His column appears regularly in the Globe.