Federalism can stoke healthy competition for residents. But there's a perverse incentive to repel the poorest ones.



In Reihan Salam's latest column, he offers a useful sketch of what separates Rep. Paul Ryan and President Obama on Medicare reform -- among other things, the president puts more faith in the ability of federal appointees to bring down costs -- and goes on to contrast their takes on the rest of the budget. "If Ryan is essentially matching the White House on how much he intends to spend on Medicare over the long term, how does he constrain the growth of federal spending more than the president?" Salam asks. "According to Obama, he does this by starving programs for the poor, like Medicaid and food stamps, and subsidies for higher education, among other things."

He goes on:

One view of the Ryan approach is that state governments and voluntary organizations will pick up the slack for meeting the needs of the non-elderly poor. State governments that do a good job of crafting cost-effective solutions will, over time, beat out state governments that don't, as households and firms migrate over time to those jurisdictions that offer the best services at the lowest cost. Moreover, the most successful state policies will presumably spread, just as the best management practices tend to spread across competing firms in a given industry.

Is that true?

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When it comes to job creation or building good transportation infrastructure or maintaining a clean environment or establishing a regulatory environment where affordable housing thrives, I have no trouble believing that successful state governments attract residents and that their practices tend to be noticed and mimicked elsewhere.

But caring for the non-elderly poor seems as if it might be different. If a state designs a program that poor people regard as especially beneficial to their interests, wouldn't a lot more poor people move to that jurisdiction? Isn't there a perverse incentive to adopt programs that repel rather than attract the non-elderly poor, who can be a drain on public resources when present in sufficient numbers and are everywhere objects of prejudice no matter how small their population?

This happens at the local level in Southern California municipalities with which I'm familiar. At the state level, it has been a problem in the past: During the Great Depression, as impoverished migrants made their way to California, the Los Angeles Police Department set up checkpoints on the border with Arizona and forbade fellow American citizens from entering the state! We're unlikely to witness a spectacle like that again, but less direct methods of keeping poor migrants away from a state seems like at least a theoretical problem for national policymakers to anticipate.

Also problematic is a federally run program for the poor that attempts one-size-fits-all programs to help populations as diverse as Hmong refugees in central California, laid-off auto workers in the Rust Belt, and Louisiana shrimp-boat captains suffering after Deepwater Horizon. Constitutional questions aside, I have no idea whether state governments or the federal government would ultimately prove to be the best option for bettering the lot of the poor. But I'd feel better about going the state route if that incentive problem were somehow addressed.

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