A woman looks at job postings with her son at the Virginia Employment Commission office in Alexandria, Virginia. REUTERS/Molly Riley
Conventional wisdom among progressives is that social reform is best carried out at the federal level. The New Deal and the 1964 Civil Rights Act, both of which were resisted at the state and local levels, are the classic paradigms for liberal reform. As Suzanne Mettler argued in her book Dividing Citizens, the federal programs of the New Deal, like Social Security, all became known as liberal programs.
By contrast, other programs, like Aid to Families With Dependent Children, were left to the states. The results were mixed. Some states were stringent, others moderately generous. But at the local level, eligibility for benefits was determined by local authorities. At the federal level, by contrast, all who met a minimum criterion were eligible for benefits. The process of judging people, often humiliating, was minimized.
As Mettler notes, “What it meant to be an ‘American citizen’ meant very different things to the retired male breadwinner, who came to expect his monthly social security check from the national government, and to the poor mother who hoped that the social worker assigned to evaluate her eligibility for a meager welfare check would find her child-rearing and housekeeping efforts worthy.”
Would more control of welfare at the top have made sense? Possibly. The federal government is better suited to setting baselines of universal coverage, thereby avoiding a race to the bottom among states in terms of regulations, benefits and taxes.
But in recent years, serious questions have arisen about the reliability of federal regulation. Consider the 2003 Georgia Fair Lending Act, intended to minimize mortgage abuses. There had been a wave of foreclosures and abusive practices in the state, and the new law restricted excessive charges and imposed severe penalties if the rules were not followed. But then federal banking regulators at the Office of the Comptroller of the Currency (OCC) announced that they would allow the national banks to ignore this rule. Georgia now has the fourth-highest foreclosure rate in the nation.
Pre-emption of local laws by federal regulators is hardly new. But it highlights what has become a growing tension between federal and local reformers. In the case of finance, federal regulators friendly to the big banks overturned state reforms time and again. Such pre-emption was a major reason states and their attorneys general were unable to stop the subprime mortgage crisis before it happened.
It has become all too clear that some federal regulators have been “captured” by the very industries they regulate. The OCC, the Securities and Exchange Commission and others—not least the Federal Reserve itself—have all been credibly accused of letting this happen. State and local governments tend to be less vulnerable to such pressures—and their employees less likely to take a future job in the lucrative industry they serve.