Freedom Line Blog

With so much attention on the turf war between Congress and the President, it’s easy to overlook another, equally disturbing separation-of-powers crisis – the swift erosion of federalism.

Just as the U.S. Constitution assigns certain powers and duties to the three coequal branches of the federal government (legislative, executive, and judicial), so too does it differentiate lines of responsibility between the federal and state governments. This latter idea is known as federalism, and it’s in pretty bad shape according to a thought-provoking essay by Richard Epstein and Mario Loyola.

In particular, the practice of conditioning receipt of federal money on capitulation to federal regulations is turning states into mere enforcement officers.

“Federal officials exert enormous influence over state budgets and state regulators, often behind the scenes,” write Epstein and Loyola. “The new federalism replaces the ‘laboratories of democracy’ with heavy-handed, one-size-fits-all solutions. Uniformity wins but diversity loses, along with innovation, local choice, and the Constitution’s necessary limits on government power.”

Both parties are guilty, but the Obama administration has accelerated the trend. Poison pill programs like Common Core, ObamaCare’s Medicaid expansion, the federal highway system and the Clean Air Act all condition money for popular programs on local officials committing their states to dependency status.

“Federal ‘assistance’ to the states currently accounts for 30 percent of state budgets, on average,” according to the authors. “Since the early 1980s, the federal government has transferred about 15 percent of its budget to the states, which is almost as much as the federal deficit in an average year.”

Let that sink in for a moment. Annual federal transfer payments to the states roughly equal the yearly federal budget deficit.

Of course, eliminating the deficit isn’t as simple as zeroing out all federal-state spending relationships. Much of the logic of federal transfer payments hangs on the idea that poor states are funneled the resources they need to close the gap on some quality of life indicators with rich states. Until relatively poor states like North Dakota are allowed to fully exploit their natural economic advantages – such as being able to extract and export its huge oil reserve – ending redistribution without removing wealth-inhibiting regulations doesn’t make sense.

However, seeing the connection between the deficit and transfer payments to states does highlight the unsustainable nature of our current federalism-destroying arrangement. If we as Americans want to have more financial flexibility at the national level, we first need to remove the barriers to economic opportunity at the state and local level.

“By boosting our energy production, the U.S. could restore its diminishing influence in the world without expending blood and treasure – in fact, we would reap major economic benefits,” writes Rep. Devin Nunes (R-CA).

Nunes is an up-and-coming member of the House Ways and Means Committee and is known for thinking big on how to use tax reform as a means to reestablish American leadership in the global economy.

Rationalizing our energy policy would go a long way too.

Thanks to improvements in technology large, untapped domestic oil and natural gas reservoirs are now reachable. States like North Dakota, Texas and Oklahoma are moving to capitalize, while huge potential awaits enterprising politicians and businesses in California and Colorado.

The benefits are many. More energy production means more jobs in extracting, refining and shipping. For example, an entry-level rig worker in North Dakota averages about $66,000 a year, while the average oil industry job in the state was $112,462 as of 2012. That also means more jobs for people serving workers flush with disposal income.

There’s also a national security angle. With Iraq’s oil fields under siege by Islamic militants, Venezuela constantly swayed by demagogic collectivists and Russia threatening to cut off natural gas shipments, it’s time for the United States to take the steps necessary to ensure greater energy independence.

Unsurprisingly, Nunes wants President Barack Obama to approve the Keystone XL pipeline, as well as implement other measures to put the nation in a game-changing position. Of course, that isn’t happening unless Obama adopts Bill Clinton’s triangulation strategy.

Don’t hold your breath.

Still, Nunes makes a compelling case for using national energy policy as a way to improve both our domestic economy and global prestige.

It’s an angle that economically recessed, war-weary Americans might soon embrace.

NBC News quotes U.S. Senator-Elect Heidi Heitkamp (D-ND) from a campaign debate on what she would say to President Barack Obama about his energy policy:

“You’re wrong on energy. You’re headed in the wrong direction. You made bad decisions,” she said, according to The Associated Press. “You promised that you would promote clean coal technologies, that you would be a champion of coal, and you haven’t done it.” She also urged the president to replace Energy Secretary Steven Chu and EPA administrator Lisa Jackson.

Certainly, that kind of independence helped Heitkamp eke out a win in a state Mitt Romney won by 20 points.  Now that she’s earned the right to speak her mind in the U.S. Senate, let’s see if she’s willing to make good on her promise.  With the coal industry staring at death by a thousand regulations, the sooner the better.

I have a working theory to explain the existence of pundits like the New York Times’ Gail Collins, self-parodists who find themselves incapable of escaping the intellectual shallows of liberalism: they must all be secretly financed by a group of wealthy conservatives who regard providing endless fodder for bloggers on the right to be a form of public service.

In Collins’ newest dispatch from the outskirts of sentience, she travels to Williston, North Dakota, a sort of 21st century boomtown where unemployment hovers around one percent thanks to the huge oil reserves now accessible from the Bakken formation.

The reality of the economic dynamism in Williston is so painfully clear that Collins is forced to present it in a fairly positive light, though that doesn’t keep her from some of the reflexive sneering of a Manhattan imperialist (she sniffs that there’s a Wal-Mart instead of an adequate mall and that “The most ambitious restaurants would be classified under the heading of ‘casual dining.’).

Because Williston’s success is fueled by conventional (read: useable) energy, however, the gravitational pull of Collins’ liberalism kicks in when, in the second half of the article, she sets out to expose the unseemly side of Williston’s growth. The results are pathetic.

First, Collins takes a swing at fracking so half-hearted that she doesn’t even seem to have bothered indulging her reflexive impulse to crib some talking points from a Huffington Post op-ed by Alec Baldwin (lest you think I’m joking, it’s here).  Her devastating critique includes the fact that the process “uses a lot of water” and makes the town dustier. Well.

Where she really goes off the rails, however, is in her attempt to portray the local economy as a thing of horror:

… Right now … there’s no place to live. Honestly, no place. To house its teachers, the school district has already purchased two apartment buildings, which have long since been filled even though the residents are all required to share their homes with another teacher. Superintendent Viola LaFontaine has taken to the radio airwaves, urging citizens to come up with places for the new faculty to stay.

“We’ve been getting good applicants,” LaFontaine said. “But they’ll make $31,500. When they find out an apartment is $2-3,000 a month, they say they can’t pay that.”

Yes! Housing costs in Williston, N.D., are approaching those in New York City. Many of the oil workers stash their families back wherever they came from, and live in “man camps,” some of which resemble giant stretches of storage units.

…

If the place you love can’t quite climb out of the recession, think of this as consolation. At least you’re not living in a man camp and waiting half an hour in line for a Big Mac.

Ms. Collins, meet supply and demand. Supply and demand, meet Ms. Collins.

What our fearless columnist is describing is the typical trajectory of boomtowns. The sudden surge of demand sends prices skyrocketing. But if her view extended beyond the tip of her nose, Collins might realize that this is the predicate for a second round of employment growth and a general lowering of prices. When demand is so high that a remote region of North Dakota can charge rents rivaling those of the beating heart of New York City, it’s an open invitation for developers to make their way to Williston, relieve the housing shortfall, and get rich in the process. Ditto the overcrowded restaurants. That means new jobs created. And the increased supply means lowered prices.

One final note: it’s telling that teachers are Collins’ go-to example. Reading her column, one could reasonably wonder how Williston’s housing stock could be both (a) so expensive that it’s prohibitive for many potential tenants and (b) filled to the gills. The answer: private-sector workers are making more than enough to meet the demands of the city’s rent. Only in the public sector, where wages are set by government diktat instead of the market, are crucial employees priced out of a place to live. That’s a real shame for the teachers of North Dakota. If the school system was privatized, they’d all be getting rich now too.

Over the weekend, the Wall Street Journal‘s Stephen Moore had an instructive and inspiring piece on the economic boom occurring in North Dakota as a result of the Peace Garden State’s (yes, that’s their actual nickname) aggressive development of oil resources.  More depressing, however (especially for this Golden State resident), was the contrast Moore drew with California:

In 1995, the U.S. Geological Survey estimated 150 million “technically recoverable barrels of oil” from the Bakken Shale [in North Dakota]. In April 2008 that number was up to about four billion barrels, and in 2010 geologists at Continental Resources (the major drilling operation in North Dakota) put it at eight billion. This week, given the discovery of a lower shelf of oil, they announced 24 billion barrels. Current technology allows for the extraction of only about 6% of the oil trapped one to two miles beneath the earth’s surface, so as the technology advances recoverable oil could eventually exceed 500 billion barrels.

Now contrast this bonanza with what’s going on in another energy-rich state: California. While North Dakota’s oil production has tripled since 2007 (to more than 150 million barrels in 2011), the Golden State’s oil production has fallen by a third in the past 20 years, to 201 million barrels last year from 320 million in 1990. The problem isn’t that California is running out of oil: In 2008, when the USGS estimated four billion barrels of recoverable oil from the Bakken, it estimated closer to 15 billion barrels in California’s vast Monterey Shale.

As Moore elaborates later (and as I’ve written at length both here and elsewhere), California’s failures are the byproduct of a governing class that regards traditional (read: viable) energy sources with suspicion at best and contempt at worst, prohibiting many efforts at energy exploration, setting renewable energy mandates, and enacting a statewide version of cap and trade.

One statistical contrast tells the whole story. The resources in California’s Monterey Shale are nearly four times as great as those in North Dakota’s Bakken. Meanwhile, California’s 10.9 percent unemployment rate is more than three times as high as North Dakota’s 3.3 percent rate. This is not fate. This is the result of choices made by California’s policymakers. The state’s voters should judge them accordingly.