I got into it a little bit with a moderator at a Mercatus panel. It was actually pretty rewarding. It was the only thing I was really passionate about the whole seminar, since it had to do with how to best help people with low income. The argument was over competitive federalism--the idea that states and localities within a federal system compete for the best people to move there. Now, this notion (termed Tiebout competition) is undoubtedly true in many cases. As anyone who is my age and planning to move localities will tell you, everyone and your parents tell you that you need to look at school districts and tax burden for any place you might move. Indeed, it is often said that the middle and upper class already have "school choice," since they have the capital, information, and incentive to move to other jurisdictions where schools or taxes might be better. (Incidentally, this seminar did do a great job of pointing out why New Jersey is awful for taxes but unevenly good for schools.)
Anyway, the problem I raise with Tiebout competition is that its benefits are uneven. The author, David Greve, argues that competition between states and localities presents only winners--all people will benefit from competition for localities. I asked if there were any people who systematically gain from cartel federalism--competitive federalism's antithesis that reduces competition and movement between places--and therefore lose out under competitive federalism. I didn't really have an answer, and my mind wasn't directed towards the problems in Tiebout competition, really. I genuinely wanted help thinking through the context of competitive federalism and what conditions might make participants in this system better or worse off.
The moderator challenged the idea that people with low-income aren't mobile. He pointed to great migrations from the South in the 30s and 40s for individuals looking for better work as well as people immigrating from Cuba and Florida. I challenged the idea that these are equivalent scenarios to moving localities due to fiscal policy issues. A person moving from DC to NoVA is not the same as people facing the threat of death and moving from totalitarian Cuba or the pre-Civil Rights Era South.
As I've been able to think about it more, the more convinced I am that public choice has a significant problem. Tiebout competition is completely inattentive to context. A person who is graduating from a Master's program and looking for a first job to start a family can engage in voting with his feet. A person on disability with a chronic health condition cannot pack up and move because their locality or state has pension debt that will absolutely cripple it financially for the next few decades. First of all, they don't have the information on where to move. If they do have any information about where to move, it is about social networks and capital within a potential new environment--not the detailed (perfect?) economic and political information they would need to have in Tiebout's model.
Though information problems are real for this person, they are actually almost entirely irrelevant since the incentives are so terrible for this person to move. He's on Medicaid in DC, most likely. He will not be eligible for Medicaid in Virginia because Virginia very high Medicaid eligibility requirements. Even if he were for some reason eligible, he would have to wait three months at minimum to get hooked up with Medicaid through Virginia's system. He'll have to get new doctors and other services. So, he's not moving if he has a chronic health condition. If he's on a housing voucher, forget it. He's not moving. That doesn't follow anyone and waiting lists in most localities range from a few months (in sparsely populated areas) to decades (in many well-populated areas). SNAP benefits will port most easily, but these benefits are very small for a single adult ($200/month). These are just social welfare incentives. This says nothing about social, cultural, or other reasons this person have for staying in his home city. Seriously, and poor people are going to leave because of fiscal insolvency?
What we can see is that these individuals are not able to take advantage of "voting with their feet" since the caretlized system prevents them from porting their benefits from one location to another. Greve has a solution to this, and it is to make Medicaid a federally-run program. I'm actually quite sympathetic to this argument. First, while the left is conceptually wrong to posit positive rights to health care, they are correct that social welfare is in our current system best granted by a federal government (preferably on the constitutional level). They are right because putting social welfare at the federal level provides a more level playing field for social welfare participants. It at least assures a floor (however tenuous). Basic income and consumer-directed Medicaid at the federal level (which we don't have but should) would give people more capital and better incentives to move from jurisdiction to jurisdiction in search of the best deal--even those with low or very low income.
But that gets me back to my original question--who loses out on a switch to competitive federalism. Undoubtedly, there are individuals like the man in our case example who have been able to garner benefits that provide him with a minimal standard of living. We can also be assured that there are a minority of social welfare participants who have been able to gain benefits so they can live comfortably and with a good standard of living. You know those public housing buildings that are oddly in nice parts of town? People live in there. Who loses in the transition to a more competitive system? People who are winning under the current flawed system will lose on some of their captured benefits when the system finds a new equilibrium point that is more equitable for all social welfare participants. Many might find that their now privately-owned housing may be more expensive than their basic income would allow. Or that Greve's voucher-for-private-insurance healthcare system would not actually help someone with chronic home health care needs. That person needs tens of thousands of dollars in services, and it would be clear from looking at their medical records for a second. No private insurer is signing on to fund that.
To be sure, social welfare under competitive federalism would have its benefits. People with proper funding can leave existing relationships that are no longer satisfactory--be they marriages, jobs, or yes, governments. However, under our current system, not everyone can participate in voting with their feet equally. And while bringing us closer to a federal social welfare system focused on cash or near-cash benefits would help things, there are definitely people within the system that will lose. Not attending to that context or having a plan for what to do with these people (who through no fault of their own disproportionately benefit at the expense of newer or potential social welfare participants) is just bad social policy.
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