<html><body>American Enterprise Institute September 12, 2008 [Edited transcript from audio tapes] <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>8:45 a.m.</DIV></TD> <TD> <DIV class=BodyText>Registration and Breakfast</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>9:00</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Panel I: Competitive and Cooperative Federalism</DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists:</DIV></TD> <TD> <DIV class=BodyText>Malcolm Feeley, University of California, Berkeley, School of Law</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><A class=eResources href="http://www.aei.org/scholars/scholarID.24/scholar.asp">Michael S. Greve</A>, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Roderick Hills, New York University School of Law</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Ilya Somin, George Mason School of Law</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>John Eastman, Chapman University School of Law  </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:50</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Panel II: Judicial Review of Federalism A Discussion</DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists: </DIV></TD> <TD> <DIV class=BodyText>Randy Barnett, Georgetown University Law Center</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Jesse Choper, University of California, Berkeley, School of Law</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator:</DIV></TD> <TD> <DIV class=BodyText>Michael S. Greve, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> <DIV class=BodyText>12:30p.m.</DIV></DIV></TD> <TD> <DIV class=BodyText>Luncheon and Keynote Address</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Speaker:</DIV></TD> <TD> <DIV class=BodyText>Judge William Pryor, U.S. Court of Appeals for the Eleventh Circuit</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>1:30 </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Panel III: Health Care and the Environment</DIV></DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists:</DIV></TD> <TD> <DIV class=BodyText>Jonathan Adler, Case Western Reserve University School of Law</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>James Blumstein, Vanderbilt University Law School</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText><A class=eResources href="http://www.aei.org/scholars/scholarID.115/scholar.asp">Thomas P. Miller</A>, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>Ashley Parrish, Kirkland & Ellis LLP </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>3:15 </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Adjournment</DIV></DIV></TD></TR></TBODY></TABLE>   Proceedings: Dean Reuter:  I think probably most people in this room recognize that during the Rehnquist Court there was a decided resurgence in federalism but the current state of federalism and the future of federalism is, I think, more at issue.  And that is our topic today.  And fortunately, we have a full day of programming to explore these issues.  We are going to begin this morning with a panel on cooperative versus competitive federalism.  It will be moderated by Dean John Eastman. And before I briefly introduce him, let me thank our co-sponsors for today s event.  Obviously our host and co-sponsor, AEI, thank you to them.  And to Ted Frank in particular who worked hard to organize this conference, and Michael Greve who also lent his abilities in organizing this conference. And our other co-sponsor, Chapman Law School and the moderator of our first panel, as I just mentioned, Dean John Eastman.  Dean Eastman is also chair of the Federalist Society s Federalism & Separation of Powers Practice Group.  So I ve gotten to know him and worked with him for several years.  He is the fairly recently installed dean of Chapman Law School, and he s doing amazing and wonderful things there, designing and implementing new programs in clinics and recruiting professors, having a lot of success at recruiting professors.  In fact, if you have a favorite professor from your old law school and you ve lost track of him or her, you might want to look for them at Chapman.  So without further -- Dean Eastman. John Eastman:  Thanks, Dean.  Yeah, we ve just finished a run of 20 hires this year, which is really extraordinary.  And now people are coming out of the woodwork, sending me additional resumes.  I wish I had another ten slots with the caliber of folks that are coming along. Anyway, we launched an interesting conference today and it occurs to me, as we kick the first session off, maybe we ask an initial question, is there a future for federalism without getting too partisan? It struck me when Senator Biden asked the question after Governor Palin s convention speech.  She didn t talk about education, she didn t talk about healthcare, she didn t talk about a whole series of things that under the old notion of federalism shouldn t have been talked about in a federal campaign at all. Many of us in this room will remember the old joke back in 1980, 81, at the beginning of the Reagan administration, How come they re having so much trouble filling the position of cabinet secretary in the Department of Education?  Nobody wanted a part-time, temporary job.   Are those days completely gone?  Is the future of federalism now more discussions of things at the margins?  There may be a ray of hope coming out of Alaska in this notion of spending cost limits.  But I don t think they ve got quite to the principles, underlying principles of federalism. I want to give you one veto message of a president from some century and a half ago to kind of set the terms  -- just as we think about what the future of federalism might mean and then we ll launch into the panel.  I m not going to tell you who this president is because he s not one of my favorites, but this was particularly good. The representatives of the states and of the people feeling a more immediate interest in obtaining money to lighten the burden of their constituents than for the promotion of the more distant objects entrusted to the federal government will naturally incline to obtain means from the federal government for state purposes.  If a question shall arise between appropriation of land or money to carry into effect the objects of the federal government and those of the state s their feelings will be enlisted in favor of the latter.  This is human nature and hence the necessity of keeping the two governments entirely distinct.  Besides, it will operate, with equal detriment, to the best interest of the states.  It would remove the most wholesome of all restraints on legislative bodies, that of being obliged to raise money by taxation from their constituents, and would lead to extravagance, if not corruption.  What is obtained easily and without responsibility will be lavishly expended. Man, I think that s a pretty good summary of what the founders thought the purpose of federalism was, this notion of unlimited national government keeping the bulk of powers of government at the more local level where they could be more directly controlled. Is that still our understanding and is there anything in the future of federalism that might have a chance of recovering some sense of that old?  To discuss these and other questions, in particular, in this first panel, cooperative versus competitive federalism, we have a wonderful panel of guests.  Their bios are in your materials.  I m not going to go at length other than just give you their name and title and affiliation. Michael Greve is going to go first and he s the John G. Searle Scholar here at AEI.  Next up will be Malcolm Feeley, the Claire Sanders Clements Dean's Chair Professor of Law - the more prestigious these things are, the longer they are, so congratulations on that -- at Boalt Hall at Berkeley.  We all call it Boalt Hall, but they recently changed, I think, for purposes of U.S. news reputation scores.  It s now the University of California Berkeley Boalt School of Law.  We want to make sure we get that in there.  Okay.  It s amazing how we re all driven by those now. Third up will be Roderick Hills, Rick Hills, the William T. Comfort, III Professor of Law at New York University.  And then finally, playing cleanup will be Ilya Somin who s an assistant professor of law at George Mason and this semester visiting at the University Of Pennsylvania Law School.  Mike Greve. Michael Greve:  Thank you, John, and thank you for your paean to James Buchanan. John Eastman:  [Inaudible] Michael Greve:  I had to let the air out of the balloon, absolutely. As an introduction, I ve been asked to give a somewhat conceptual overview of the terrain here.  I ve been asked to do this because I m by nature non-opinionated and in a good position to do this. There are, basically, I think, two ways of looking at federalism.  One is called advertical perspective, the states versus the national government and how do you strike that balance.  And the other dimension or the other perspective on federalism is what this panel is eventually about; the dimension is competition amongst states versus cooperation or as I prefer to say cartelization amongst states.  As it happens, I m inclined to think that the second perspective is actually the right perspective constitutionally speaking.  Now that s a very complicated argument.  The main purpose of my brief remarks here is to explain how this vertical versus the horizontal perspective, how those differ and what that entails for the role of the courts and with respect to judicial doctrines about federalism. Start with the vertical states versus the national government perspective, which has been the dominant perspective both in American law and American political science over the past six, seven, eight decades.  So the theory goes that there are two levels of government and they have different powers and when these powers and spheres remain separate we call it dual federalism and when they get co-mingled and powers are exercised jointly among levels of government we call it cooperative federalism.   And the central question you want to ask yourself in that federalism scheme is what s the appropriate balance between the two levels, the two constitutionally specified levels of government?  And the second question you want to ask yourself in that framework is, is there any role in that scheme for the United States Supreme Court?  Notice this protecting federalism and the federal balance translates into protecting states as states.  And that s true regardless of whether you follow Professor Wexler s theory that now states have to be left to their own devices in the political process as the Wexlerians and neo-Wexlerians think or whether you side with the critics, including the Rehnquist Court that says, Yes, the Supreme Court does have a role in protecting states as states.   Both view, both perspectives view that as the central purpose of federalism. I confess I can make no constitutional sense of that perspective whatsoever.  The federalism balance is in fact the federalism invention of the New Deal.  The first time that federalism, in our modern sense, appears in any United States court opinion comes in 1939.  Needless to say almost, that decision was written by Felix Frankfurter.  The term federalism balance shows up three or four years later in another Frankfurter opinion.  I will come back to the significance of that point. The competitive federalism model runs orthogonal to this vertical states versus nation perspective and it starts with the question what is federalism for, and there are really only two arguments for federalism that one can think of.  One is to reduce the decision costs at the central level and the other is to constrain leviathan, constrain government.  So federalism and so on constrains the central government because it withholds certain areas from its reach.  And it controls and constrains states because of exit and mobility.  If a state over-regulates and overtaxes, people run away and that will create competition amongst states.  That s why it s called competitive federalism.   Notice there is in that scheme no preconceived balance between the states and the federal government and notice further that that federalism, competitive federalism is not for states as states.  It looks to the fate of citizens and firms, not to the well-being of states.  In fact, to the extent that competitive federalism cares about the fate of the states at all, it wants that fate to be very, very harsh.  It starts with Madisonian premise.  What are states?  Answer: they are faction-driven governments.  As modern theorists put that same premise, they are surplus-maximizing leviathans.  They want to expropriate their citizens and then hand the money over to their friends, which we now call interest groups or in a somewhat more charitable term stakeholders, which is really all you need to know about modern government. Competitive federalism s point is to erode that ability because of the potential of out-migration.  States will therefore consistently loathe and hate and resist competitive federalism.  They will want to create cartels.  To that extent, they will want to lock themselves under a federal umbrella because cartels and political markets confront the same free market problems that cartels and private markets encounter.  That in essence, the cartelization of federalism is the New Deal constitution; contrary to widespread belief the New Deal constitution did not centralize anything at all.  Its programs were cartels at every level. I ll give you two examples.  One is the fiscal cooperative federalism programs that we all hold so dear.  Think Medicaid.  These are tax and spend cartels.  And they produce levels of spending and taxation that are in excess of any state s authentic preferences.  My other example is extraterritorial taxation and regulation.  The competitive rule is crystal clear: states have to tax and regulate their own citizens and not somebody else s and of course what faction-driven states, leviathans want to do is tax everybody except their own citizens.  And the cartel optimizing-surplus-maximizing rule is an agreement amongst state governments.  I tax your citizens and firms and you exploit my citizens and firms and no one will be the wiser.  Frequently that requires the cooperation of Congress for reasons explained but we now have many, many organizations that do this on their own without congressional intermediation.  They re called things like National Association of Insurance Commissioners, Multi-State Tax Commission, National Association of Attorneys General.  These are all organizations for the coordination, that is to say for the coordinated exploitation, of citizens across state lines. This is what the New Deal meant by federalism balance, cartels at every level.  I ll give you three doctrinal examples.  I would be happy to talk about these at greater length.  The first is the anti-trust immunity doctrine of Parker versus Brown.  That s a clear example.  Second one is the doctrine of Erie and Klaxon, which is the choice of law; must in all events, be left to the plaintiff who will then predictably sort herself or himself into the most exploitative jurisdiction. A third example is the presumption against preemption of Rice versus Santa Fe fame that, to this day, spooks through that area of the law.  All of these doctrines were originally formulated explicitly as compensating adjustments for the demise of enumerated powers.  All are exploitation maximizing rules which I d be happy to demonstrate at the slightest provocation from anybody in the audience or in the panel. Now, with these two different models, the vertical model that still dominates the law and the competitive federalism model that I ve just sketched, what s the role of the court?  Well, in the vertical, the balanced view, the role of the court is to protect states as states or as the Supreme Court now says in a bizarre word to protect the state s dignity.  Against that stands Robert Wexler, know the states have to help themselves in the political process.  I confess I have no dog in that fight because the Wexler premise strikes me as so wrong that not even the opposite is true.  The problem isn t or the question isn t whether states can defend themselves.  The problem, because they don t want to do that, the problem is should this court stop states from cartelizing the political system either with congressional help or without them.  So what the competitive federalism model then recommends to you is the court should view itself as a kind of political anti-trust agency.  You want to let the political market work so long as it will but when intergovernmental conspiracies are afoot you want to crack down.  I have one minute left.  I ll give you a few examples of how the federalism doctrines shake out under these two different models.  I ll group them in three groups and I ll give you examples.  The first group is pro-state doctrines.  That is to say doctrines that flow from this vertical model that happen to have pro-competitive overlaps and rationales.  The clear statement rule falls in that category and the anti-commandeering rule falls in that category.  The second group of doctrines is pro-competitive doctrines that are now intensely contested.  And I want to add intensely contested especially by self-appointed originalists because they look anti-state.  The dormant commerce clause falls into that category and the doctrine of implied preemption falls into that category.  And the third and final group of doctrines is doctrines that we would need for competitive federalism but that aren t even remotely within the contemplation of the court or the legal establishment because they are antithetical to the New Deal constitution and to the New Deal program of cartels at every level.  I mentioned three examples, three doctrines that you would need or have to reconstruct, meaning full doctrines of extraterritorial jurisdiction.  Horizontal federalism rules that are in fact in the constitution such as the full fifth and credit clause and compact clause but are now explicitly unenforceable, under a binding precedent but decided by the court because they have competitive implications.  And the third example is you will have to rethink the Erie-Klaxon regime.  You have to think that something has to stop the race into plaintiff-friendly states and the implication is that you cannot run American federalism without something like federal common law whether you choose to call it that or not.  The consideration of those last doctrines, as I said, is a long way off.  I think the crucial federalism battleground over the next decade is in the second group of the dormant commerce clause and implied preemption.  If you want to look at the future of federalism, that s where you ought to look.  Thank you. John Eastman:  Okay, Professor Feeley. Malcolm Feeley:  I ve been asked to give a talk on democratic theory, what is the nature of democracy.  And so I start out by saying democracy is a system of government that has two political parties with winner-take-all elections.  It has a parliamentary system with the Prime Minister selected from the largest faction in the parliament.  It has two houses of Parliament, one that has aristocratic basis.  Somewhere along the line, someone in the audience, is going to raise her hand and say, Wait a minute, Feeley; you re not talking about democracy.  You re talking about the British political system.   Well, let me suggest that most discussions of federalism sound a bit like my would-be talk about democracy; that is discussions of federalism are not theoretical but they are anchored in a strong basis of one particular political system.  Now my audience, about the democracy, would say maybe written as a democracy or not, but why don t you define the characteristics of democracy, the essential features of it and the implications, and then assess the practices in Great Britain or the United States or any other place in light of the theoretical framework that you ve laid out and defended. Well, I want to try to do the same thing for federalism in just a few minutes here, and I m pleased to see that in recent years I m not alone, or my colleague, Ed Rubin and I are not alone in trying to understand the essential features of federalism.  But we want to divorce it from federalism in any particular setting including the United States. As important as those issues are, we get back to them.  So I want to make some very basic claims about federalism and about the nature of state formation that I think are Government 101 claims that are not particularly controversial.  And then I want to explore some of the implications.  And some of the implications I think are startling and non-obvious.  And so I want to work through those.  Ed Rubin and I, in our recent book and our articles over the past few years, define federalism in a very straightforward way.  It s a dictionary definition.  Federalism is a system of government in which there are multiple levels of government and each level has some degree of sovereignty, some degree of economy.  So that s our understanding of federalism, as I say, dictionary definition, almost.  Secondly, we have a rather, I think, conventional understanding of the nature of state formation.  A state is formed, at least a successful state, that succeeds and endures over time succeeds because there is identity, a political identity that individuals hold for that territorial unit.  Political identity is different than other sorts of identity - religious identity, ethnic identity, and so on -- because it s territorially based, it s a distinctive feature of identity.  And a successful state is one in which the members of that state have some degree of identity.  How do we know how strong that identity is?  One sort of rough and ready indication is whether people are willing to kill or be killed for it.  That seems to me a good understanding of a strong political identity.  Federalism complicates that situation because federalism creates dual identities.  And we suggest that federalism emerges when there are in fact conflicts about political identity.  It s a compromise.  It s a compromise between those that have an identity with a central government and others, usually subsets, and has to be territorially concentrated although not exclusively subsets that have identity with the strong political identity with another territory.  Federalism then is that unhappy and tragic compromise of those that identify at the central level and those that identify at the local level.  It s a way of coping.  We suggest that it s inherently unstable; that it s likely either to resolve towards a breakup and of course the history of most federalisms is one of a breakup and demise or resolve towards a unitary government.  But our point is that these two identities are in conflict with one another and are hence unstable.  Our argument is, when we worked through this, is that the United States is no longer a federal system.  We have one single national political identity.  Very few people, if any, are willing to kill and be killed for the subunit governments in the United States.  Ed grew up in Brooklyn and I grew up in Texas and we have strong senses of identity but I don t think either of us is willing to kill or be killed for those localities.  So what we suggest is what looks like federalism in the United States and elsewhere is really a closely allied but nevertheless conceptually distinct form of organization.  It s decentralization.  But decentralization is a managerial strategy controlled from the center and not federalism.  Federalism is a system in which units have sovereignty within their spheres.  They can do or not do whatever they want.  They can be competitive or they can be slothful.  They can do whatever they want.  That s what sovereignty, that s what states rights would mean in any meaningful sense.  Decentralization on the other hand is a strategy to achieve a particular set of goals.  General Motors can decentralize and Buick and Chevrolet motor car companies against each other because it thinks it s a strategy for maximizing profits.  And it may or may not be.  If it is, we ll continue.  If it s not, they might want to reorganize into a different form of organization.  But what I want to emphasize here is that federalism again grants autonomy or sovereignty to the levels of government, the units of government and they can compete or not compete as they see fit.  So the idea of competitive federalism, cooperative federalism, or picket fence federalism or any of the other sorts of federalism that Michael has outlined here is really something that makes a lot more sense when you re thinking about a strategy for decentralization and trying to maximize some particular goals.  I want to emphasize that federalism does not have goals.  Federalism is a structural arrangement that allocates powers.  It s not a managerial strategy that pursues particular goals.  Now, why is it that there is so much confusion between decentralization and federalism?  Part of it, I suggest, is simply a conceptual confusion.  The two are related but it seems to me, if we have terms we ought to breathe meaning into them, as opposed to using them for whatever they want and so we ought to press for conceptual clarity.  That s what I m trying to do here.  A second one is simply carelessness.  The huge literature on fiscal federalism put out by the political economist is simply careless.  It s not talking about federalism at all.  It s talking about decentralization.  And in their more reflective moments the economists that write about fiscal federalism recognize this well.  So it s probably the dean of the field says, We screwed up and used the wrong term.  We should have used decentralization because we re really not talking about federalism.   There s still another reason why I think that federalism continues to be used and embraced so widely, and that is nostalgia.  We talk about federalism today, in the 21st century, and it s a nice way of conjuring up that simpler society of moonlight Magnolias of the 19th century.  It s a way of conjuring up a warmer and fuzzier life, at least for some people.  I grew up in the segregated south so I don t remember states rights and federalism as quite filled with moonlight and Magnolia.  And finally it seems to me that federalism is used as a smokescreen, as a mask, as a device to mask political preferences.  It s one thing to say I prefer A, B, and C.  I prefer a more competitive state or I prefer a stronger, meaner, leaner state or I prefer a welfare state.  But it s another thing to say and it adds a bit of heft to say, It s not my preferences.   This is implicit in the age-old structure that we embraced and that our forefathers and our founders wanted, namely federalism.  So federalism is a way of masking naked policy preferences.  Trying to dress them up in the guise of inevitability; flowing from a structure that we all know and love.  What does this say with respect to policies about federalism?  Certainly not do away with the states, but contrary to Michael, I think the only reasonable position, at least, with respect to American federalism and what to do is the Wexler-Choper idea that the issue of federalism should be non-justiciable.  One bit of evidence and here s where I would agree, and be in heated agreement with Michael, is that a bit of evidence to suggest that there is no deep theory and appreciation for federalism, is that all theories of federalism are incoherent.  The old courts - or the Roosevelt courts understanding of federalism was anchored in an incoherent and rather arbitrary division, and the Rehnquist Court that follows the same way.  There is no coherent theory to what they re suggesting.  It s just a bit of indirect evidence to suggest that they re really not talking about federalism; they re talking about something else.  And as I say that something else I think is decentralization. John Eastman:  Professor Hills. Roderick Hills:  Hi.  You know, I admire Malcolm s work so much because everyone needs someone to get them fired up in the morning, right?  You know?  And facing consensus and bland agreement is not a way to get up and feel revved.  And since 1994, I ferociously disagreed with Malcolm s theory of federalism.  And what I want to talk about today is a theory of competition that is directly at odds with Malcolm s dichotomous definition of what federalism is about.  In Malcolm s theory there are two purposes for -- I m going to call it federalism/decentralization.  Federalism is about protecting ethnic or religious or cultural enclaves from each other.  You know, you have Catholics in Bavaria, you have Protestants in Prussia.  You give them each little bit of territory and let them govern themselves.  Decentralization is simply about managerial efficiency.  Some central guy at General Motors said, Gee, we ll have a better parts policy if we decentralized decisions about parts to our individual factories.   But Malcolm is forgetting, I think, a third theory of federalism.  I m going to use the word federalism.   But if you want to use Herbert, that s okay -- Herbertism.  And this third theory of federalism is about agency costs.  Now it s going to be different from Ilya s theory, which I think he s going to talk about.  Ilya can talk about state-state competition.  How states compete with each other for a mobile citizenry and thereby avoid rent seeking.  What I want to talk about is state federal competition, the theory of the Republicans, the country party ideologues of the 18th century, and the Jacksonians.  This theory of agency costs goes something like this: large-scale democracy does not allow voters to monitor elected officials very well, largely for three reasons.  First, large electoral districts tend to be dominated by big money.  Why?  Because labor canvassing, voter to voter, is much more effective in a small district.  In a large district, you need to tap the TV market, the radio market.  The number of people in the district is very hard to communicate with and so the anti-federalists, the federal farmer, Brutus, would say in a large electoral district, the wealthy and the well-connected will dominate.  So we want to keep the electoral district small.  But the people elected from those districts don t want to keep electoral districts small.  They re not like the chairman of General Motors who wants to maximize profits.  They re like people who have interests different from their shareholders.  And therefore we need a constitutional constraint to keep the electoral district small.  How is that constrained?  We re going to give a lot of power to units that have small electoral districts.  The second reason why large-scale democracy leads to agency cost -- and by agency costs I simply mean the difficulty of the principals, the voters to monitor their agents, elected officials.  A heterogeneous issue environment tends to be very hard for voters to monitor.  By heterogonous issues I mean lots and lots of different issues -- gay rights, balanced budget, do we stay in Iraq.  Think of lots of disparate issues that have nothing to do with each other.  The more heterogeneous the environment, the more difficult it is for citizens to assemble a stable majority coalition, more difficult it is for citizens to monitor bills that have lots of unrelated issues in them.  And therefore the anti-federalists say, If you have a large central government that monitors lots and lots of different issues with lots and lots of heterogamous interests, everything from gay and lesbian rights to, you know, gender equality, to court reform, to what do we do about asbestos to military policy, citizens will be confused.  They will probably suffer from cycling because you tend to get more cycling of issues and manipulation of issues in a heterogeneous issue environment.   Third reason why you have lots of agency costs in a large-scale democracy: information tends to be hard to acquire as the ratio of appointed to elected officials favors the former.  A bureaucratic state will tend to be a large-scale state simply because the ratio of elected officials in the federal government, 537, to appointed experts, policy experts will tend to favor the appointed policy experts.  As you diminish the scale of government; the ratio of elected officials to appointed officials tends to favor the latter.  Voters tend to have more control over the latter.  And so if you want to avoid management by a bureaucracy, call it Lord North Ministry, call it the Securities and Exchange Commission, you will tend to want to be governed by Mayberry [phonetic] because the ratio of elected officials to appointed officials will tend to favor elected ones.  Now this is a very simple theory of agency cost that, in any case, to debate this theory of federalism, you need to engage.  You can t keep talking about the difference between ethnic competition and managerial decentralization.  You need to think about what the shareholders at General Motors might fear from the chairman.  Why might they want to put in the by-laws of the corporation a rule that says, You must decentralize to the factory manager because we don t trust you.   Now I ve just used five of my minutes and for the balance of the time I want to suggest that the theory of federalism that prevailed in the United States from roughly 1786 with the debate over the Bank of North America to roughly 1864 with the end of the Tawny Court.  It was largely concerned with precisely this agency cost theory of federalism.  It was about competition between states that are responsive to populist officials and a federal government that was believed to be too bureaucratically dominated and too dominated by what Jackson would call moneyed interest.  Where does this theory of agency cost come from?  In the 18th century it would be called country party ideology.  It rose out of the landed gentry s opposition to the national debt, in the Bank of England in 1694 and it continued with the opposition of the South Sea Company in 1720s.  Here s how the theory goes: there s a small financial leads at the metropolitan center, call them the chairman of General Motors.  They tend, this management group, to dominate parliament.  Sure, parliament is ostensively elected but it turns out that parliament have lots of bribes from these private financiers.  These financiers get their money by underwriting public debt.  They have preferred contracts or access to public debt.  They secure support in parliament by giving parliament, literally giving them, securities in their corporation, which is largely a corporation that underwrites public debt.  So this group of financiers, private financiers at the metropolitan center, call it London, Philadelphia, or New York City, will dominate an ostensively elected set of officials, parliament.  What do we do about them?  Well, somehow we ve got to get power to that country, would be the expression in 18th century England, or the colonists would say to the Western provinces.  The anti-federalists and later the Republicans were largely concerned with controlling banks, banks that were chartered in Philadelphia and seemed to have control over capital and seemed to have too much power over the national government.  And so the anti-federalist largely got their start opposing the Bank of North America.  Likewise, the Republicans got their start opposing the Bank of the United States.  Here was their claim - now, I m not trying to say that their claim was correct or not.  But here was the claim: these banks are chartered in the capital; they have disproportionate influence over the national legislature.   They have this disproportionate influence because the electoral distinction, which the national legislation electoral are very large and so it s difficult for someone without a lot of money to compete.  If we want to control capital, we should devolve power from a government with small electoral districts which are largely governed by people who canvass door to door through labor rather than through money and we shall also devolve a way from financial experts - call him Alexander Hamilton, call him Robert Morris of the Bank of North America, call him Nicholas Biddle of the Bank of the United States - because these financial experts are hand in glove with elected officials who aren t really elected, like Henry Clay.  And so this perhaps paranoid, perhaps accurate view of the national government is the national government suffered from agency cost.  What was the solution?  Devolution to those individual factories within the system, the states, because the theory was that they d be much more responsive to lay people.  Jackson s hostility to federal power, to what he called the monster bank, was largely driven by this vision of federalism that the states could control financial interest, the national government couldn t and wouldn t.  Now the most important points you need to understand about country party ideology are three-fold in nature.  First of all, the federal constitution s division of powers is largely a way to control the division - a struggle between economic classes.  Jackson would call it: one economic class. The producer, namely small firms, family-owned firms, and farmers, and the other economic class are capitalists, managers of large-scale national capital.  And he thought that the states would be more responsive to the producers.  That s point number one.  Until you understand that this class struggle between social classes and not struggle between ethnic and religious groups that drives American federalism you won t understand American federalism.  You ll confuse it with the kind of federalism they have in India where they use federalism to protect ethnic or religious groups.  Second point, federalism can t be mirrored administrative decentralization because federal officials cannot be trusted to decentralize optimally.  It s a political economy story, right?  If you say to the central Wiseman center, Make sure you decentralize just right.   They ll say, Sure, buddy.   But they ll make sure that their national agencies have much more power than they ought to have because they find it easy to contest challengers to incumbency in a large-scale republic.  They don t like to devolve power to the states.  Third, this is going to be the most controversial in this crowd.  It will be my last point.  Federalism is not about limited government.  Jackson was not in favor of limited government, and the hard money Jacksonians weren t in favor of it.  After the crash of 1837, the Van Burenites and the hard money Jacksonians advocated what?  State ownership of banks.  That s why they didn t like the Bank of the United States.  They also wanted state ownership of canals.  They also wanted heavy, heavy taxation of private corporations.  They were wild-eyed populists.  You want to know what the Jacksonian looks like?  Ralph Nader.  It s the theory of agency cost.  It s a theory about perhaps inefficient populists to democracy.  It might not be a theory we want to adopt.  If you want a theory in action, look at preemption struggles today between the FDA and common law tort or between state banking authorities and the Office of the Comptroller.  Those are where Jacksonian democracy or country party ideology is being played out and it s that ideology that was the original understanding of our federal compact and nothing more. John Eastman:  Professor Somin. Ilya Somin:  Thank you.  I hope everyone can hear me.  Over the years, I ve disagreed in various ways with all three of the previous preceding speakers, but rather than tediously go through those disagreements, I think I want to talk about one aspect of competitive federalism that, to my mind, its benefits have not been sufficiently appreciated, even in the recent, more sophisticated academic debate over federalism that my co-panelists so ably represent, and that is the benefit of voting with your feet.  When you vote with your feet, that means that, for instance, I live in the state of Virginia by -- if the state of Virginia provides poor public services or too much taxes or is otherwise flawed in various ways, I have the option of moving to another state, another jurisdiction where my preferences are better met, the public services might be better, perhaps the taxes are lower, and so on.  Now in a series of influential works, Malcolm Feeley has argued that, you know, we re no longer willing to kill for federalism.  We no longer have a strong sense of identity as Virginians.  Perhaps even we don t have a strong sense of identity as Virginians, perhaps, we don t even have a strong sense of identity as Texans, for those people who live in that state, although some might contest that, and therefore, I suggest that benefits of federalism are not going to be that significant in society where we think of ourselves Americans first rather than Texans or Virginians or Pennsylvanians or what-not.  My perspective is almost exactly the opposite that the benefits of federalism might well be greater if we don t have a strong sense of identity with our states because lacking that sense of identity, we re more willing to leave, we re more willing to say, You know what, I don t care about Virginia.  I don t like it here.  They have bad policies.  And so I m just going to go somewhere else, in a way that Robert E. Lee probably would not have done because he, in some ways, at least, thought of himself as a Virginian first and American second. And these benefits from voting with your feet are greater if there is decentralization and competition between states.  It is when states are in competition with each other for people and for capital that they have incentives to adopt policies that will meet the preferences of the people who might potentially migrate and therefore improve things and enable foot-voting to work more effectively than it might otherwise.  Now among the benefits of competition are better policy, policy that more effectively meets the preferences of people and also potentially, experimentation.  Obviously, state governments, when they compete with each other have an incentive to make innovations that will attract migrants, will attract investors, and so forth.  Now many people say, Well, really this only helps the rich, after all, only the big corporations, you know, the moneyed interest that Rick was just talking about only these guys can really benefit from competition, not the down-trodden people.   Perhaps Andrew Jackson was wrong to think that decentralization and federalism would benefit the people.  The modern perspective is we need a strong central government to do that.  I think this is at most only partially correct and then to the contrary, historically, often it is in fact the poor and down-trodden who have benefited most from interstate migration and voting with your feet.  Perhaps the most important and successful example of voting with your feet in all of American history was the movement of blacks from the south during the Jim Crow era to the northern and western states that, while far from perfect, had less oppressive policies towards African Americans than southern states did.  Millions of these people who were down-trodden, oppressed, poorly educated nonetheless were able to make the decision to move to the north, and most of them became far better off as a result.  And there are many other similar examples of poor, discriminated against, and otherwise oppressed people improving their lot by voting with their feet both in the United States and also in other federal systems.  Indeed in some ways the poor can more easily benefit from foot-voting than the wealthy.  It is the one kind of thing that foot-voting can t help you with is when the state or local government is somehow oppressing or exploiting immobile assets.    So for instance, if they re targeting your land or your factory or something else that can t be moved then you re kind of out of lack.  Foot-voting won t help you and of course, almost by definition, the poor and the oppressed are unlikely to own very much in the way of expensive, immobile assets.  If they were factory owners or big land owners, they wouldn t be poor.  So therefore foot-voting, in many ways, is even more beneficial for them than for the owners of capital or big land owners or the Robert E. Lee s of the world with their estates.  Rather, it s more for the poor, blacks who left the south and moved to Chicago, for example, to improve their lives.  Now there s a second way in which foot-voting s benefits are greater than it s, perhaps, perceived in addition to the fact that they re particularly beneficial to the poor and the oppressed.  And that is that when you engage in foot-voting as opposed to conventional ballot box voting you have much better incentives to acquire and use information about the different options before you.  When you vote at the ballot box, you suffer from what economists call rational ignorance.   That is that there s almost no chance, in most elections, that your individual vote will actually swing the outcome.  In the presidential election it s about a 1 in 100 million chance.  Even in the local election it s 1 and several thousand perhaps, at best, if you re very lucky.  Now that means that if your only incentive to acquire political information is to be a better voter to make sure the right candidate wins, that s not much of an incentive at all.  You ll flip the channel away from CNN and start watching reality TV because that s more interesting and, you know, has more benefit for you and that s exactly what most people do.  Decades of survey research show that most people have little or no political knowledge.  They don t even know basic things such as, often, which party controls Congress, what s the difference between liberalism and conservatism.  The most important and biggest new government program over the last 40 years was Bush s prescription drug Medicare plan.  Seventy percent of the public didn t even know that this program had been adopted by Congress, much less whether it was a good idea or not.  One advantage of foot-voting over ballot box voting is that there isn t this kind of rationale ignorance.  That is that when you decide to move from one state to another or one city to another, your decision is decisive.  You don t cast your ballot in an election with thousands of other people and the majority will decide whether I move from Virginia to Pennsylvania or not rather I get to decide that with myself or if you re married, you know, at worst your vote is one out of two in your family even -- John Eastman:  You ve been married long enough -- Ilya Somin:  Okay.  Well, I haven t been married at all. [Laughter]  Fine.  Worse maybe, you know, maybe have a very domineering spouse so they get two votes for your one or something.  Still your relative influence in the process is much greater than it is in the presidential election and therefore your incentive to acquire information is much stronger.  Not only do you have more of an incentive to acquire information, but you also have more of an incentive to use that information in a rational way.  Numerous studies show not just that most voters don t know much about politics, they also show that most voters are very biased in the way that they evaluate the information.  They tend to undervalue any information that makes their preferred candidate or their party look bad and overvalue any information that s the opposite.  Consider the way democrats reacted to the various charge against Sarah Palin just recently, with the way that Republicans reacted.  The one side many ways overstated the significance of those charges.  The other side said, No, there can t possibly be any problem here, like, you know, don t look in this direction.   And that s a pretty typical way that people react to new political information and it s perfectly rational in the context of political ignorance because, after all, I don t have much incentive to try to evaluate that information in a logical, unbiased way because, hey, the significance of my vote is pretty unimportant anyway.  When people make a decision on where they re going to move, where they re going to live, they have much more incentive to be rational, much more incentive to try to fight their own biases.  Certainly they re not going to be perfect.  They re going to make mistakes.  But there s less chance that they will than in an electoral situation.  And this is a major advantage of foot-voting over ballot box voting that I think is often overlooked and that is not sufficiently considered in the existing literature, except of course articles that I ve written.  You have to toot your own horn sometimes in these academic conferences.  Now this conference is supposed to be about the future of federalism.  In fact I m the guy guilty of inventing that title so I should note that foot-voting might be even better in the future than it was in the past.  One way that might be even better is that the cost of moving are lower.  Obviously in the age when poor blacks were migrating from the south to the north 100 years ago or 50 years ago it was much more costly to move from, say, South Carolina to New York than it is today.  Second way is that we have the Internet; we have lots of sources of information to make it easier to acquire knowledge about what s going on in other states.  And so that also makes foot-voting better.  Now what are some of the implications of the benefits of foot-voting for the structure of federalism?  Well, I think Michael Greve touched on some of these.  One important one is that we want to prevent cartelization among the states.  We want states to compete with each other so that foot-voters will have more and better options.  And that may also mean limiting federal government interventions that facilitate cartelization in all the different ways that Michael has described in his talk and in his book.  A second implication is that we may want to limit federal grants to state governments.  Obviously the big incentive for states to compete is that they want money, right?  They want taxpayers to come in or at least not to flee.  However if the states can instead get their money from the federal sugar-daddy, sort of, you know, welfare payment for states, welfare dependency for states, then their incentive to compete becomes less, and their incentive to offer good options to foot-voters is also diminished.  And so we want to get the states off welfare, at least as much as possible, if we want to engage in redistribution at the federal level, which by the way I m not completely opposed to.  It should be redistribution to individual citizens rather than redistribution to state governments.  If we want to help the poor perhaps give them various federal grants and programs, but don t give money to the states.  That way the states will have an incentive to compete in ways that benefit both the poor and the rich.  And if we want to provide for the poor with redistributing programs we can do that in other ways.  So I think I ll end at this point and I really look forward to everyone s comments and questions.  Thank you. John Eastman:  Very good.  All right.  Let s go back down the row and if you have any rebuttal points and then we ll open it up for questions to the audience. Michael Greve:  Brother Hills has 98 percent of this stuff exactly right.  This is a hugely important point where Rick started and I side with him in his criticism of Malcolm.  There are really two principles of politics loose in the world.  And one is identity politics or what Hegel called The Struggle for Recognition.   And the other is raw interest which is the stuff of modern bourgeois society.  America is in many, many ways the most modern country on the planet.  It is purely about interest and that includes its federalism.  If there is one principle behind American federalism and the way states are designed and drawn -- I mean, of course the first 13 were in existence but the way the others were drawn is we must not have ethnically, religiously, linguistically identifiable states.  We must not.  We d rather draw the state lines anywhere than along those lines.  Several states had to wait for a very, very long time - Oklahoma and Alaska are two examples - before being admitted because they still were ethnically identifiable.  They are ethnically identifiable entities on American territories, we call those places reservations.  And states are not reservations.  So the principle of American federalism is just that: interest.  It is or as Rick calls it -- and he s right about that too -- social class.  I would add one complication to his account and that is this.  I have a somewhat less charitable view of Jacksonian democracy.  The bank issue at the time throughout the antebellum era was entangled with two other issues.  One was the tariff and the other one was the question of internal improvements.  What do those three issues: the bank, internal improvements, and the tariff, have in common?  Answer: they ran along sectional lines.  What might that sectional line have been?  Answer: slavery.  What this is about is -- what complicates Rick s story greatly is the force, the brutal force and of sectionalism in American politics, which did not disappear with slavery.  It continued throughout the post-Civil War era, throughout the progressive era.  It is, in some ways, still enforced today.  What is the one dimension or what s the principal dimension along which you can t easily cartelize states?  Even Congress can t cartelize states.  The Supreme Court tries.  Answer: these moral issues, the death penalty, abortion, gay rights, and so forth.  And if you look at the map where those states - I mean, what that is actually about is what the Supreme Court is after in those decisions from [indiscernible] to all of these decisions is to end sovereign exceptionalism in American politics.  That is what that part is about.  The rest of it, as I said, I think Rick has exactly right, in particular his analogy between the earlier dates and the modern Naderite version.  The book that most pristinely embodies public citizens and Ralph Nader s version of federalism is called Empowering Government.  You will hear more about that brilliant book later.  That is that version of federalism.  The countermodel to that is my federalism which I call real federalism.   That is competitive federalism and I assure you it means a whole lot less government.  So, Rick has the exact analysis, exactly right.  He s just chosen the wrong side in this debate. John Eastman:  Professor Feeley? Malcolm Feeley:  Yes.  I listened to Michael and Rick and it seem to me that they illustrate the point I wanted to make about my would-be lecture on democracy or as I started talking about Great Britain and rather than democratic theory.  That is they so conflated the idea of federalism with the history of the United States that is hard to tell where one ends and the other begins.  They are conflated together, and it seems to me, it would be useful to have a conceptually distinct understanding of federalism and then reflect on it as it applies to a particular state, say, the United States.  Ilya sounded very good.  It sounded terrific.  It sounds familiar.  And I would urge you all to read the Tiebout article where he s talking about competition, but interestingly enough he s talking about competition among municipalities.  Everything that Ilya says may or may not make sense, but it has very little to do with federalism and of course the classic article from which it springs is talking about walking with your feet, moving from Fairfax County to Montgomery County or somewhere else within this - the same state here [indiscernible] and not too much to do with federalism. John Eastman:  And we still have an identity out in California. Malcolm Feeley:  Excuse me. John Eastman:  Lots of different identities.  Professor Hills. Roderick Hills:  Yeah.  Two points.  Quick.  One is the idea that reduction in scale of government, in size -- and by size I mean the population that it governs - will reduce agency cost is not indigenous to the United States.  It is not unique to the United States.  It s an abstract theory of federalism that started in England, incidentally, but it s also existing in Italy, the Green Party pushes it in Germany.  They are big favor - believe it or not the environmentalists in Germany love decentralization.  Italian Communists love decentralization and they love it for this abstract reason: they believe that agency costs, power of the people will be greater when you reduce the size of electoral districts.  That s not confusing federalism with U.S. federalism.  That s coming up with a general theory that has been especially prominent in antebellum United States.  Second point, I don t think that Ilya s theory of voting with your feet, which I hardly endorse -- and I don t want to identify myself with Jacksonian or anti-federalism, I simply want to throw it out there -- is a perfectly consistent coherent theory of federalism that would require constitutional protection.  But I want to point out that Ilya s argument about voting with your feet works with states as well.  And indeed it s rich in economic literature starting with Untz and Schwan (?)[indiscernible] that talks about state competition protecting both economic efficiency and to a certain extent avoidance of rent seeking, you know, unspeakably corrupt redistribution of wealth.  So I don t think it s the case that the two build hypothesis which is true, worked with local expenditures, doesn t work with states.  But I m not an economist won t get into that much in detail.  I just want to end and point out that even if every census tracked in the United States were demographically identical, there would still be reasons to protect federalism with constitutional rules, reasons that are not unique to the United States.  We go to this abstract theory that it s easier to control the managers if the number of shareholders is smaller.  Now, I don t know if I agree with that theory.  It would take a lot of empirical evidence to verify it.  But it is a theory of constitutional federalism, not managerial decentralization that transcends you as borders as one that everybody in this room needs to take seriously if they care about federalism. John Eastman:  Professor Somin. Ilya Somin:  Yeah.  So I mean, Malcolm asked what is a good question, well, are you actually advocating federalism or merely decentralization?  Well, part of my answer is maybe I don t care that much.  I care more about the result than the words.  So if I lose the terminological debate but win the substance debate, I can still be reasonably happy, I think, or at least, you know, as happy as academics will probably get.  However, I do think there is an important non-terminological point here which is, that Malcolm has said in his writing that decentralization is simply a decision made by the central government saying we believe it will be more efficient or more useful to have some autonomy in the local or state governments.  But that autonomy can be taken away at anytime if the federal government later decides otherwise.  So we can certainly imagine a Congress or a benevolent dictator perhaps even John Eastman or James Buchanan saying, You know, I like the idea of decentralization so I ll set up the Tiebout model.   However, in real world federalism or real world decentralization, for reasons that Rick points out, that probably won t be a stable situation because the central government, if left to its own devices, will have very strong incentives to undermine the autonomy of the subunits or alternatively to help them engage in cartelization, something that the subunits themselves would want.  So we need a sphere of autonomy for state governments and perhaps for local governments as well for a system of competitive federalism to work effectively.  Now the Tiebout model has been mentioned.  It s true; I think part of my argument is based on the Tiebout model.  I would note however two things.  One is Tiebout explicitly did not include competition in his theory.  He just - and his is a model of people moving around, voting with their feet, among essentially, randomly selected qualities that make decisions on how they structured their public services for reasons unrelated to competition.  And secondly, Tiebout did not address the issue of information use and acquisition.  That s something that I think until recently has largely not been included in debate.  I guess the very last point that I would mention is several people have aver the fact that we don t have much in the way of ethnic federalism in the United States, that is states that are enclaves for one particular ethnic group, which is the majority in the state and the minority in the national government.  That s actually not entirely true.  We do have the state of Utah which was set up for the specific purpose of providing a refuge for Mormons, not an ethnic group, to be sure but a religious group that have been oppressed by both the national and other state governments.  But for the most part it is true; very few of our states who are identified were particular ethnic groups.  I think in many ways that s a good thing for competitive federalism because it means that people can more easily and more effectively vote with their feet and we don t have the kind of situation like in India or even worse in Iraq where many people feel they have to stay in the state which is identified with their ethnic group and can t move somewhere else.  To me that is actually a good thing about American federalism, something that we re lucky to have and in many ways actually strengthens the case for decentralization and for competition, even perhaps with reference to Mormons in Utah who today can and do move to other states because fortunately prejudice against them has declined. John Eastman:  Okay.  Let s open it to questions from the audience.  I suspect there may be one or two?  Yes. Male Voice [speaking away from the microphone]:  I ve read this [inaudible] first time I realized that the article [inaudible] and it was striking that people [inaudible].  And it you really looked at that debate that went on there was a tremendous compromise [inaudible] and therefore the founding fathers did the best they could.  At that time they probably didn t think [indiscernible] three weeks to get to Washington [inaudible] that we would never have ports and airplanes to get around [inaudible words] All I am saying is that inter-scholarships with us should likely reach out and understand that the country has grown [indiscernible] problems we ve had most of them -- John Eastman:  Well, let me try and summarize that real quickly.  Don t you have to begin in your discussion with looking at the differences between what things are like in 1787 and now, does that require that we look at this differently.  Yeah.  Go ahead, Rick. Roderick Hills:  Yeah.  I d go farther than Bill Coleman [phonetic].  I would say the federalists - I mean, by the Federalist Party, not the Federalist Society, hated states.  The Federalist Party, those who were pushing the U.S. constitution loathed states and Madison himself, who later changed his mind, would have abolished them.  Hamilton at one point simply said, Let s just make them convenient subdivisions of the national government.   Hamilton was a Malcolmite, right?  Administrative decentralization.  All the provisions in the constitution that protect the states are there despite the founding fathers if you assume the Federalist Party.  What were the main founding fathers?  It s the rear-guard action, was fought by people like Millinkin Smith [phonetic] in New York, William Findley [phonetic] -- by the way, anybody know these names?  Of course not, right?  They re the losers of history.  But they won enough.  What did they win?  They won the Bill of Rights.  They also kept an enumeration of powers.  And Madison, at the beginning of the Philadelphia Conference says we can t have an enumeration of powers.  No one can enumerate the powers the national government will need.  But nevertheless the committee on detail threw in an enumeration of powers.  All of those things are in there because of the anti-federalists, and they tended to be anti-bank, anti-commerce, anti-capitalism, anti-big city, largely live in the western reaches of Pennsylvania, Western Massachusetts, and Western New York, and later cropped up, almost identical rhetoric as Jacksonian democrats.  Now the question is, what about today?  I mean, If the states were pernicious from a nationalist point of view in 1789, boy, they are even more trouble today!  Darn right!  If the populist attitude of the anti-federalist tends to be hostile to economic efficiency, tends to want loot local corporations in Creek County, Oklahoma, tends to be deeply suspicious of national unity, what do you get in return for these inefficiencies?  Well, you get juries that tend to be very representative, you get a certain kind of populist politics, and you get redistribution of locational rents to local people who don t have power at the national level.  You like that?  You ll love U.S. federalism.  You don t?  Well, you should go the Malcolm Feeley way. Ilya Somin:  If so, one small point, I would also put in a plug for George Mason, the guy that the school that I teach at is named after, was one of the people who helped limit federal power in the 1780 s.  Now I agree with much of what Rick just said that the states can serve as a check on federal power.  However, that s only true if there is a system of competitive rather than cooperative federalism because in a system of cooperative federalism, the federal government can give money to the states, which by the way, many of these populists, at least in more recent years, were perfectly happy with and they can give money to the state to get them to do things that they want to establish cartels and so on. So, only if we limit not only federal power generally but also the federal government s ability to transfer money to states can we have some of the benefits that I was talking about or at least can we have them more fully.  And this also, to some extent, is a difference between my position and that of the European left-of-center federalists that Rick and others were referring to, the Italian Communists and others.  These guys, they do like decentralization in many ways.  But they like it so long as the central government parcels out money to the state and local government to pay for the programs that they want to do.  By contrast, I would argue that the state government should raise all or most of their money through taxing their own citizens and having to compete in the market for potential taxpayers.  And if we want to engage in redistribution, that may be fine, but do it at the federal level by giving money to the poor and needy individuals directly rather than by handing out checks to state governments. John Eastman:  Let s wait to get the microphone back there.  Back here, yes. Dennis Coyle:  Thank you.  Dennis Coyle from Catholic University and adjunct AEI.  Hi, Malcolm.  And the question for Ilya, the usual response to the idea that voting with your feet would be good for the poor is the race to the bottom, that the service they would want would be undersupplied by the states in a competitive environment.  Is that not a problem?  Or if it is, I hear you suggesting that the answer might be to have, essentially, the federalization of all welfare so payments sent directly from the national government to the individual and then they could move where they wanted.  And if indeed that s your answer, are you prepared to accept an appointment in the Obama Administration? Ilya Somin:  It s a good question and I would say that both of the suggestions that you made are, in fact, part of my answer.  One answer is that I wouldn t expect the race to bottom to happen with respect to any group that can provide more in revenue and economic growth to a state than they take out in taxes and relatively poor people do in fact contribute to economic growth as workers, as consumers, in various other ways so long as they are in the workforce.  And in fact, historically, states have wanted to attract poor and unskilled labor in many ways.  And so to, do that, they have to provide services and other benefits that these people would want. Now there is a subset of people who I think would be much smaller than perhaps those who really would serve in the Obama Administration believe, who perhaps, because of severe handicaps or other conditions, maybe are just incapable of supporting themselves.  And for those people, yes, I think some federally sponsored redistribution would be desirable.  However, I think in a successful competitive economy and one with competitive federalism and voting with your feet, those people would be a relatively small fraction of the population.  So by all means, I ll do redistribution to them, perhaps, for most of the rest of the population, they will be better served by competitive markets in voting with your feet, including the poor, who historically have benefitted enormously from interstate mobility, and I would argue more so than the wealthy, and could benefit even more if we had greater competition and less dependency of state governments on federal funding. Michael S. Greve:  Just to add something to that, I share Ilya s preference for if you want to have -- well, a step back, one of my intellectual and political heroes, Senator Moynihan, was a harsh critic of the cooperative federalism programs that we have.  And he used to say, If we want to redistribute money, I have an idea.  Let s redistribute money.   And what he meant was directly from the government that is best equipped to do that, namely the national government, to individuals so that Social Security, for example, would be a model program of that. The horror is, programs like Medicaid, education where the money sloshes through states and goes to places rather than individuals, that s so, for all sorts of reasons.  What I want to add to this is why is it then that Social Security or what we now call Social Security is the only nationalized program, I mean, redistributive program in the United States with states out of the equation?  And the principal reason is that cooperative federalism, that is the giving of transfers to state and local governments, is a response to the weakness of redistributional coalitions in the United States at the national level.  That s right.  If you ran these, if you put the political system to the test, do you want to keep this local?  Either you can have it at the national level or you can have it at the state and local level, but not in this cooperative fashion.  You would not get it at all.  What cooperation allows is -- what cooperation and fiscal transfers allow is to disguise the amount of money that goes into the system.  This is, just to add one more wrinkle to that, I do think that courts in that sector have a role, not in terms of limiting the reach of the spending clause, I think Congress can spend whatever it wants to and give the money to whoever it wants to, but in terms of superintending the terms of the bargains, because while these cooperative programs may or may not have -- may produce coordination gains, the loss of transparency, the loss of accountability is not only a given, it is the intended result.  And that is precisely why you need some outside force, some outside monitoring agency, meaning the Supreme Court, to superintend them [inaudible] state.  That s the true and correct competitive justification of the Clear Statement Rule and its corollaries. Ilya Somin:  Just one very quick point, Social Security is actually not the only program that just gives money to individuals, but there s also the Earned Income Tax Credit, which, unlike Social Security, most of the money actually does go to the poor, whereas with Social Security, most of the money goes to the distinctly non-poor elderly.  And if I had to pick a model for how redistribution should operate, it would be something like the Earned Income Tax Credit, a central government program where the money is actually transferred directly to the poor with the minimum involvement either by the state governments or by federal bureaucracies and experts of the sort that Rick was criticizing in his populist comments.  So we can have something like the Earned Income Tax Credit and at the same time also have competitive federalism where the states have to compete for taxpayers and revenue through a foot voting market. Roderick Hills:  Can I just say one thing?  Just so I could wave a pitchfork and be a populist.  I come from New York City.  There, redistributive coalitions are strong but mobility constrains our ability to give money to the poor.  We re willing but we re not able.  At the United States, mobility does not constrain effort.  It s hard to migrate to the United States to escape taxation.  But redistribution coalitions are weak.  They re able but they re not willing.  If you think redistributive coalitions, a.k.a. the poor, are weak in Congress because of agency costs, not because there s not a lot of them, but simply because they can t organize in large constituencies, this is a tragedy.  It means that there s no level of government that can help the poor because the nation is not willing, although it is able, and the states, where the poor are legitimately strong by their numbers, are willing but they re not able.  So that s something to worry about if you are on the left. Female Voice:  Insurance was indirectly mentioned early on.  And I d like to know what your opinions might be about the fact that it seems to me that it s just a matter of time until the one significant thing that the states seem to still regulate that s important in our economy is insurance.  And would you have an opinion about whether or not it s just a matter of time for practically anything if it comes to the attention of the Congress or to the Supreme Court and eventually it becomes federalized for whatever reason and very little will eventually be left to the states? Malcolm Feeley:  There is certainly no question that the national government could regulate insurance.  There s no sphere of activity that the national government can t regulate.  That s why what goes on at the states goes on at the sufferance of the national government. Michael S. Greve:  There will be some additional federal involvement.  I have no idea which form it will take, and what form it will take is enormously important.  Insurance regulation could stay at the state level except take different -- take place on very different shores of law and federalism principles, namely those of corporate law.  And lots of quirks in -- or you could have, yet, a different model which is being advocated, my colleague Peter Wallison here, gave an optional federal charter for insurance so that the insurers could either operate under a federal charter or under a state charter that would roughly resemble the system we have in the banking sector. I don t have particularly high hopes for either of these proposals, and the reasons why I don t is that after a Supreme Court decision in the 1860 s that said insurance isn t interstate commerce, the insurers mobilized both in the courts and they mobilized in Congress and said, Please, please, please give us an optional federal charter.   They started that campaign in the 1870 s, a hundred and thirty, forty years later, they re still at it.  I wish them the best of luck but I don t have very high hopes. The other point I want to stress here is there is a little piece of this, of the proposal or the de facto competition scheme I just outlined in Senator McCain s platform, and that is what used to be the Shadegg Bill, that is to say let people purchase health insurance across state lines.  I am vehemently in favor of that.  The estimates are that you could insure 12 million people.  That s a third of the uninsured or upwards of 25 percent of the uninsured out there in that single stroke, if that were permitted.  Will that ever happen?  No way, no how.  A: the Democrats are resolutely against it, and B: most of the Republicans are resolutely against it because what keeps it is that Republican constituencies, chiropractors, Blue Cross, Blue Shield, on and on, they re all entrenched in these state systems.  They don t want to lose that.  They don t want to be exposed to competition.  So the thing is a brilliant idea.  Everybody agrees that that s the one thing that would do most and most quickly to insure the uninsured.  But there s no way it s ever going to happen.  If that continues, there s going to be discontinued stalemate between state regulation that we have and at some point, maybe wholesale nationalization under some preemptive scheme because -- along ERISA lines because this cannot continue. Roderick Hills:  I just have to say one thing because I think insurance is a triumph or a tragedy, depending upon whether you are a Jacksonian.  And the Karen-Ferguson Act was largely responsive to the State Association of Insurance Commisioners or I should say the Association of State Insurance Commisioners, and that has proved remarkably durable.  Look at your Insurance Exception in ERISA for instance.  Every time anybody tries to get rid of Insurance Exceptions that give insurance to the states, a coalition of the state insurance commissioners and personal injury lawyers, the state trial bar, get together and fight it off.  They are classic Jacksonian constituencies.  They tend to be locally elected.  They tend to have their power at the local constituencies, juries, small electoral districts, states judges who are elected, and they win.  And I suspect that they will continue to win. If there s going to be nationalization, it ll either be through federal judicial insurance construction of ERISA to be far more preemptive and construe the ERISA Insurance Exception very narrowly, but it won t be through national legislation.  Whether you think that s a good thing or a bad thing depends upon whether you think that small businesses, small gentry, the landed gentry, are to get their piece of the action.  Of course, the Jacksonians thought that was great.  A lot of other people don t. Ilya Somin:  Just one small point, this sort of debate over insurance illustrates a great aspect of how state governments don t necessarily want competition.  In this instance, most state governments do not want outside insurers to be able to compete with the ones who are already ensconced within the state.  And so for a system of foot voting and competition to work, there does have to be restrictions not only on the power of the central government but also on the power of the state governments to exclude outside competitors for their businesses and other interest groups. Randy Barnett, who is in our audience, has written an excellent article on how the original purpose of the Commerce Clause was to enable Congress to break down state trade barriers that states had set up.  And this, to some extent, is a modern example of the kind of thing that the Commerce Clause is supposed to get rid of, but perhaps, the Founding Fathers underestimated the power of some of these protectionist interests at the state level and their ability to find creative ways to defend against competition. So this is a great example of how advocating decentralization and competition is not the same thing as advocating giving state governments what they want because much of what they want is to protect their locally powerful interest groups and to establish a cartel system where like our insurance companies can have their protected market here and, you guys, insurance companies can have their own sort of system over there.  And that s great from a state government point of view.  It s not so great from the point of view of individual citizens who want cheaper and better health insurance or from the standpoint of pursuing a set-up of a more competitive version of federalism. John Eastman:  Let s see over here.  Where s our microphone?  She s coming. Brian Galle:  Hi, Brian Galle, Florida State University College of Law and this year, Georgetown.  So it seems to me that there s an imperfect fit between the theories that we ve heard from both Rick and Ilya and the fact that we have fixed state borders.  All right, so you might say that for both of them, what we want is a theory not of either a maximal or a minimal agency cost and maximal competition but optimal agency cost, optimal competition.  But we have a republic, not a democracy, so obviously, we re not trying to minimize agency costs.  And Ilya, in his short presentation, couldn t mention all the downsides to competition.  Like the fact that if there s interstate competition, it s hard to have policy competition at times because you can t get the funding that you want.  There are deadweight losses to relocation, right? So in both of those areas, there are tradeoffs between the goal that you want and some of the downsides and this means that sometimes, the regions of competition that you want may be bigger than states are, and sometimes, they may be smaller than states are and unfortunately, the subdivisions smaller than states are under the political control of states, right?  So what you want are sort of floating boundaries because all the factors that go into making competition or agency cost optimal are going to change over time.  But we don t have fluid borders.  We have fixed state borders which lead us with imperfect competition and imperfect agency cost most of the time.  So how does one reconcile those two explanations for why there should be state autonomy with the fact that state autonomy doesn t actually get you the results that you want? Ilya Somin:  I think there s a difference between saying it doesn t get you those results at all and saying that it doesn t get them as perfectly as I might want.  And to some extent, you re right.  It would be better if we had less fixed boundaries.  And indeed, there are economists, like Bruno Frey, who have argued for overlapping boundaries for different sorts of government functions.  In an ideal world, I would agree with Frey s proposal and I wish we had it.  In a non-ideal world, we have either competition between jurisdictions with fixed boundaries or we have to rely on ballot box voting at the central level.  And I would suggest that the latter is worse in most ways, even though the former is far from perfect.  And I didn t mean to suggest that it was anywhere close to perfect. Now you also made a couple more specific points.  You say well, maybe states can t raise the revenue that they need to provide the services.  My answer simply is that if the services are attractive to taxpayers, then they can attract the taxpayers they need to provide them.  And so if on the other hand the services, they can t attract those taxpayers, that s a sign that maybe those services aren t really worth it, that maybe they shouldn t be provided. Now it s true, I think also, that the optimal scale for provision of certain services is different from the scale of our states.  However, states that want to attract in capital and labor for competition will have some incentive to readjust their local and municipal boundaries to make them more optimal.  In the long run, I do actually think that some of our states are too big and therefore, we might benefit perhaps, I know this will be shocking to Malcolm, but we might benefit from breaking up California or Texas or some of the other bigger states.  So I m not wedded to our existing boundaries or I think that they are optimal.  I do think, however, that a lot of good competition can take place within them and that we have to compare imperfect alternatives.  And I think an imperfect system of competitive federalism can still be significantly better than an imperfect system of either cooperative federalism or a unitary state. Malcolm Feeley:  Yes, I do ask that question because the real growth industry in government over the past 100 years has been special districts and interstate compacts.  In fact, we re not a government of 50 or 51 units.  We re a government of tens of thousands of units, many of which are local, within states and others cross state boundaries in order to capture the catchment areas that you suggest.  This is the modern process of decentralization. John Eastman:  And I ll add to that, having experienced the overlapping districts in California, the theory was that the overlapping district would be a substitute for the old generic property tax base and it ends up becoming simply an add-on.  So you still pay the same tax rates that you used to and then you pay your utility rate and then you pay your electric rate which is different than the gas rate and you pay your school district and your roads and the park district and the school textbook district.  We have all these things, all in addition to the old and it doesn t work.  It just adds more and more layers of government. Roderick Hills:  I wanted to strongly disagree with Ilya on the agency cost.  Rigid unchangeable boundaries reduce agency cost.  You can t gerrymander the Senate.  The House of Rep -- why is it now -- here s something really funny.  For those who like the Founding Fathers, the Founding Fathers thought the Senate would be the stable force of long-term incumbents.  The House would be very populist.  Why is it that the average House member serves longer than your senator?  Because the House members gerrymander their boundaries so they can t be challenged.  They re all safe districts.  You can t gerrymander the Senate.  So the Illinois District is unbelievably unstable, right?  It s got all kinds of people in it.  You don t have a safe district. If you could gerrymander the states so you could control their partisan composition, then the incumbency rate in the Senate would skyrocket.  If you like competitive elections, you like rigid boundaries, or at least ones that can t be changed by a politician. Michael S. Greve:  Let me just quickly add to that.  Rick has mentioned one argument, one very powerful argument for stable jurisdictional boundaries.  There are other arguments.  There are in this literature, I think, two traditions.  One is the efficiency Tiebout literature, right?  I won t qualify it other than to clarify that that is not the tradition I work in.  I m not interested in efficiency.  I don t believe the Tiebout models for the most part for reasons that I d be happy to explain but would bore 90 percent of the audience.  What I believe in is a political theory of jurisdictional competition.  Its goal is not to produce efficiency but to limit exploitation. Grover Norquist, an activist in this town, likes to say, We want to make governments small enough until we can drown it in a bathtub.   I don t think we ll ever get there and that s not my agenda.  But I do think that the American political process is now so productive of interest group and political exploitation that you seriously have to think about any mechanism, any constitutional mechanism, that promises to limit that process.  The federalism I sketched, I think, has some of that potential.  That is what I m after.  Whether that makes government more efficient in some sense that economists would recognize, I truly have no idea. John Eastman:  Michael, you should join with me on limiting the spending cost, as well, then.  Okay, next question over here. Keith Neilson:  My name is Keith Neilson.  I m from the Campaign to Defend the Right to a Secret Ballot, Dr. Keith Neilson, if you wish.  None of the speakers have mentioned what I would say would be the main question in discussing the nature of the American Constitution, which is the fact that the American Constitution was modeled on the Roman Republic, not on Athenian Democracy, point one.  And point two, that there is evidence that there was actually a conspiracy to prevent a serious discussion of Athenian Democracy at the Constitutional Convention.  And that would be the main question.  I mean, it affects everything that has occurred since.  When, for example, we examine the so-called populist Andrew Jackson and discovered that he was, in fact, a Masonic Grand Master and that he came into being at the same time that the Anti-American Anti-Masonic Party waged a decade-long struggle against secret factions in the American Republic, as the last speaker pointed out when he said republic, not a democracy.  But none of the speakers have addressed that main question and it s one which affects everything else. John Eastman:  Anyone want to take that up? Roderick Hills:  I m just a lunatic fan of the Anti-Masonic Party.  I think they re just absolutely hilarious and they actually succeed in the 1850 s and 40s in electing some very interesting candidates.  One of them, a major anti-Mason, was Seward, the governor of New York.  That s all I have to say.  They re really keen. John Eastman:  Okay, down here.  Where s our microphone?  Get back here and then I m going to go back there and then we ll go to you for the last question. Kyle Barbieri:  Hi, Kyle Barbieri, Georgia Perimeter College.  I have a question, and I hope you could provide some clarity for this.  On the constitutionality of the redistribution of funds, and specifically in the area of education and maybe welfare and healthcare, I guess that Congress is getting this power from the General Welfare Clause of Article I Section 8 Clause 1.  And if that s the case, I want your opinion because if understood Madison correctly in the federalist papers, he addresses the concerns of anti-federalists that this General Welfare Clause will provide a sweeping power to the federal government to use against the states.  And he said, if I understood it correctly, that nothing is more common to start off with a general expression then going to the particulars. And so I think what he s meaning is that the Tax and Spend Power under the General Welfare Clause will be provided or would be in relation to the following enumeration of powers.  That they can tax and spend on those following remaining enumeration powers two through 18 but not maybe to get out of -- into education and other state functions.  So I just wanted to know your feelings on that or your thoughts on that. Ilya Somin:  Yes.  I ve actually written an entire article about this question where I argue that federal grants to state governments, at least many of them, probably are unconstitutional.  It s in the Georgetown Law Journal in 2002, if you happen to be interested.  I m not going to go through my whole argument here, but I will say merely that if you look at the General Welfare Clause, it says that Congress can tax to provide for the common defense and general welfare and pay the debt to the United States. Now general welfare simply means anything that Congress thinks might be in the interest of the country and that it would be superfluous to also provide them the power to pay for the common defense and the debt to the United States because after all, obviously, the common defense and the debts can reasonably be thought of as in the interest of the country as a whole.  So that suggested the word general welfare has a much narrower definition, one that does not encompass all of defense and paying the debts and so on.  And therefore, some further series of arguments that I make in the article, it suggested many, if not all, grants that go to particular states from the federal government, in fact, are not in accordance with the tax and original meaning of the Constitution. Now whether we can change that back after 70 or 80 years of massive federal grant to state governments, certainly, I don t think that the Supreme Court is going to strike it down.  So all I think we can hope for is sort of incremental movement in a direction of making the states less dependent on federal funding and therefore, have more incentives for competition.  But I do think that the tax that the Constitution strongly suggests that it s not the case that the general welfare just means anything and everything that Congress might want to do.  And John Eastman also has written some -- John Eastman:  General meant national, not local. Ilya Somin:  -- on this as well. John Eastman:  That s what I meant.  [inaudible] Michael S. Greve:  I think this is wrong.  I believe that the general welfare language is a restriction or a limitation on the power to tax, not on the power to spend.  The power to spend is an inherent authority of Congress.  Just as our inherent executive powers or our inherent legislative powers, this is the most important one.  How does that fit into the larger constitutional architecture?  Answer: the Spending Clause does not have to -- or the Spending Power, sorry -- the Spending Power does not have to be limited because it is not an exercise of the Supremacy Power or is not pursuant to the Supremacy Clause. When a state rejects the money, nothing follows and the federal government stays just as powerless in that area as it was before.  The course of effects or the obligating effects of the federal funds follow from the state s acceptance of the funds, not from the Supremacy Clause or anything like that.  The Supreme Court has put this in the formula of saying that federal grants are in the nature of a contract.  That s Pennhurst vs. Halderman, 457 U.S. 1 Page 16, I believe. John Eastman:  We need to hold another day on the Spending Clause.  But I ve got two more questions, one on the back and then one here, and then we are out of time for this panel. Brian Walsh:  Thanks.  Brian Walsh from the Heritage Foundation and I want to direct my question primarily to Professor Feeley.  One of the things, if I understand your argument correctly, and I m kind of hopeful about it because I think you said that federalism is a theory of allocation of power among multiple sovereigns, which a number of us, friends and allies, think that that is a limitation on some of the abuses of civil liberties concerns that we have, friends that we have on the left and the right.  But at the same time, I think one of the things that many of us would like to see is a decoupling, a decoupling between federalism as a theory of limitation of power, and on the other hand, where it often is very quickly discarded as just a way of accomplishing a state s rights, i.e. slavery, Jim Crow, et cetera. So my question is if that is the characterization of what federalism is and how it should operate, which is just an allocation of power among sovereigns, we would think that would be amoral and that there would be benefits to it as well.  So in addition to what we saw on the Jim Crow era, et cetera, what are the benefits that accrue to the United States and to United States citizens under the federalism when we had more of a federalist system, where there were truly multiple sovereigns?  And as a suggestion, a place to start, one of the places we re looking at is in crime and the enormous federal prison population, for example.  So as that starting point, I d be very interested in hearing what the benefits are of the federalist system and what they have been to the Americans in the past? Malcolm Feeley:  Yes, the benefits in the past, I think, have been that it has given expression to a sense of identity.  I do have a quite different theory.  I don t think nations are formed by calculating people, rationally figuring out how they maximize their benefits.  I think nations are formed by an autocratic process of a group coming together and then having an identity.  In the early country, regionalism was important.  I don t think federalism was ever terribly important.  I m thinking of Brutus response to Federalist 78.  Remember what he says there.  When Hamilton tries to say the court is powerful but not too powerful, it s like Goldilocks, not too strong, not too weak, just right.  And what Brutus says is, Beware.  The Constitution gives Congress vast amounts of power and it gives the national court system vast amounts of power and they re going to walk hand in hand to overwhelm the states.   Well, I think that has largely borne out throughout history and it was there.  It was Brutus that said it.  The losers were saying it. The difference between Brutus and me is that he was lamenting what was likely to happen and I say, It was a good thing, too.   So I don t think we have ever had a terribly robust federal system, but one can imagine where and one can imagine a setting in which Mormons in Utah did a pretty good job.  We might even imagine where a residue of federalism exists is that residents of Puerto Rico get not such a bad deal.  They get lots of benefits of the Americans but then of course, they don t have to pay a lot of the taxes, which bothers some of us.  But in fact, we don t have because we have never had deep strong state identity.  We ve never had real robust or real federalism. John Eastman:  Okay, the last question here.  Last question here. Larry Mead:  Larry Mead from NYU and AEI.  It s hard to view federalism as a mere administrative device for decentralization or for the functional arguments that we re hearing about, voting with your feet and so on because, first of all, the states have a prior constitutional existence in the Constitution.  They re not the creatures of Washington.  That argument is a lot stronger within a state where the lower level jurisdictions are the creatures of the state government.  And on the functional arguments, if it were true that we are voting with our feet, then you d see stronger changes across states in their relative policies under the pressures of competition, I m not aware that there is actually strong evidence for that.  I d like to know if there really is, that there d be more evidence within a state than across the states. In particular, there s very weak evidence.  In fact, virtually no evidence for the race to the bottom in connection with welfare.  States continue, even today, to be very, very different, benefits and policies.  So these arguments aren t pretty strong.  So I think federalism has a constitutional presence that isn t really administrative and rational in its origins.  But if that s true, and this is the question I put to the panel, you would have expected to see much more resistance to the use of the spending power to produce a, sort of, single nation, administrative structure, involving federal programs.  You would have expected to see Supreme Court doctrines restricting the spending power because it is subversive of separate states.  And I wonder how you can explain that.  What is it?  Maybe this can be the subject of the next panel, but why is it that we don t have more restrictions on that power? John Eastman:  I guess we re going to run real quickly because we re over time. Ilya Somin:  These are two very interesting points.  Just quickly on the second one about the spending power, before the New Deal, there actually was very little in the way of federal grants in state governments, and therefore, or before the 1920 s, to some extent, and so there wasn t much reason in that era to fear that there would be a great undermining of the states by that.  And in fact, in the 19th century, many presidents and others and even Congress, to some extent, thought that it would be unconstitutional to have lots of federal grants to state governments.  John Eastman has documented this in some of his work. Obviously, why haven t we seen that resistance since the New Deal?  Well, because since the New Deal, as Michael mentioned, there was a transformation and sea change in the relationship between the federal government and the states.  And many state governments are actually very happy to get federal grants, whether it undermines federalism or not.  After all, they don t care about federalism per se.  They care about their own political interests. Now as to the evidence of variation in state policies, I think you do see states often changing policies under competitive pressure.  Currently, many education reform efforts at the state and local level are driven by this.  You also see Northern and Western states making many changes in economic policies as a result of the migration to the South and to the Sun Belt in the 70s and 80s.  Many Northern states, including states like Massachusetts, did end up cutting taxes and reducing regulation and making other changes in response to that.  There are other historical examples that can be mentioned.  I just don t want to trench on the time too much.  But it s not the case that the states were simply inert and don t respond as much as we want them to, but they do, to some degree. Michael S. Greve:  Once states are fairly homogenous or once the political apparatus finds a way to cut them in on deals by means of funding formulas and so forth, the Supreme Court will not sustain doctrines that stop that process.  It has never done so.  The gargantuan expansion of the Commerce Clause in the decades leading up to the New Deal and thereafter was not an imposition on the states.  It was a response to state demand.  That s what they wanted.  That s what they got.  And the reason why the Supreme Court is not willing to clamp down on that is to say, look, how can this scheme be hostile to federalism if the states themselves demand it?  And that question does not have a very good answer unless you have a very robust and firm theory, which the Supreme Court hasn t had. John Eastman:  Very good.  With that, I think we ll close the panel.  Let s join me in thanking all of the panelists. [Break]  [01:46:09-01:58:23] Michael S. Greve:  Professor Barnett says start, and I m just here to follow orders.  The great thing about the United States is not federalism.  The great thing about America is it s a free country.  Everybody is entitled to his own federalism.  You ve heard four views on the preceding panel.  You will now hear two more.  In your packs, there are speaker biographies.  The panelists on this installment here are so prominent; they need no introduction, Randy Barnett and Jesse Choper.  I can t remember.  Did we have an arrangement of who goes first? Randy Barnett:  Jesse just asked me that.  Jesse said he wanted me to go first so I always do what Jesse wants. Michael S. Greve:  We will go in alphabetical order and that is an order.  Randy, please. Randy Barnett:  Well, first of all, thanks to AEI and the Federalist Society for inviting me to this very interesting conference.  I have to say I was so impressed by the substance of the first panel that I m feeling a little bit intimidated about contributing anything, after that panel.  That was unusually substantive panel for an academic conference of any kind.  So, I really enjoyed that. I thought what I would do in my talk, although this is a talk about the future of federalism, this is also a panel that s been devoted to the idea of the judiciary and the judicial role in enforcing federalism.  And that means a discussion of constitutional doctrine, which, Malcolm, has to do with the United States constitutional doctrines.  So I will be talking about that as opposed to the European Union s constitutional doctrine. And so, what I want to talk about is the past as a prelude to the future because one of the things that has frustrated me about discussions of federalism in pretty much all of the circles I run in is that it s so amorphous that people don t really clarify what they mean by federalism.  And I think the reason for that is there really are multiple meanings of federalism, doctrinally, in the United States, and they get run together.  I particularly had that problem when we were doing our brief writing in the Raich case, which the organizers of this program graciously included the Supreme Court opinion in your packet.  I think that was just to annoy me or to pain me or whatever, but if you want to read the wisdom of the Supreme Court, it s there for you to read.  The problem I had when I was brief writing in there is because they kept referring -- my co-counsels kept referring to the federalism parts of our opinion or the federalism argument, and I couldn t keep straight which part of our arguments were the federalism parts of our arguments.  We had enumerated powers arguments; we had some state sovereignty or state autonomy arguments.  And I couldn t figure out -- sometimes when they were just chatting about which were the federalism arguments -- which ones they were.  And in a way, the talk that I m giving today, which grows out of a talk I gave at Loyola and which was published in the Loyola Law Review, you have in your packets an earlier version of that talk, not the published version, these Three Federalisms idea grows out of my experience in the Raich case, with this amorphous concept of federalism.  Because I think in the history of our country, we have had not one but three distinct notions of federalism, doctrines of federalism, and we, in discussing federalism, particularly in the constitutional sense, have to keep these three notions distinct. So let me just go through the three of them and talk a little bit about them.  And then after that, I ll turn it over -- and I m going to be somewhat descriptive here and then I think in the course of our conversation, I m going to be a little bit more normative about what ought to be in the future, although I probably can t resist getting normative now. So let me talk about the first one.  The first one, that came first, at the time of the founding was what I would call Enumerated Powers Federalism , and it was a very simple idea.  I mean, first of all, all of these ideas will be familiar to you.  The contribution of this talk is simply to identify them as distinct notions of federalism that you have to keep straight when you re talking about it, that s all, so none of these is going to be new, in that sense.  Enumerated Powers Federalism is a theory of federalism that basically allocates power between the state and federal governments by means of the enumeration of federal power.  That s how it s done.  States have all the power left over after there has been power enumerated to the federal government.  That was the original theory of federalism. Now whether that is a good theory or a bad theory is a separate question.  I think it has some strengths to it.  I m a proponent of Enumerated Powers Federalism as qualified in the ways that I m going to talk about, in a moment, but it has its downsides.  It has its serious downsides.  And the most obvious one goes to one of the principal reasons why we had a doctrine of Enumerated Powers Federalism, and that is to reserve a tremendous amount of power to the states everything left over.  Everything left over is reserved to the states. Now what was the reason for that?  Well, there are lots of reasons for that.  But one of the principal reasons for that is to ensure that states may maintain the institution of slavery.  Now if you re going to have a theory of federalism that s powerful enough or gives states enough power to maintain the institution of slavery, states are going to have a whole heck of a lot of power, enough power to enslave parts of their citizenry or parts of their population, so this is unreasonable and anachronistic in this context.  So that s a lot of power.  And that s what the original Enumerated Powers Federalism was in part, not entirely, but in part, intended to accomplish. The other part it was intended to accomplish was something Ilya mentioned earlier and that is to eliminate trade barriers by allocating the enumerated powers to the federal government in order to give federal authorities enough power to eliminate some of the trade barriers that was taking place at the state level.  Sure, that was another thing.  They were trying to do a lot of things, not just one thing.  So the important thing here isn t that they were trying to only do one thing but whatever they were trying to do, they wanted to leave states enough power so that they can maintain the institution of slavery.  Okay, so that s Enumerated Powers Federalism. I have no interest in defending Enumerated Powers Federalism as a constitutional doctrine by itself.  I don t have to.  It s not the Constitution we have today.  The Constitution we have today was modified, somewhat radically modified, by the Reconstruction Amendments, by the Thirteenth and Fourteenth Amendments.  The Thirteenth Amendment specifically, as you know, took slavery off the table.  It said, Okay, fine, states can do whatever they want.   If you just had the Thirteenth Amendment, states can do whatever they want but they can t enslave their own people.  That s the one thing they can t do.  In fact, under the Thirteenth Amendment, nobody can enslave anybody.  It s one of the only provisions of the Constitution that is not aimed solely at government.  It s aimed at anybody.  Slavery shall not exist, period, in the United States. So that was a substantial qualification but it was a pretty narrow one.  What happened immediately after that?  Well, you all know what happened immediately after that was that the states who had a strong interest in slavery and a strong interest in perpetuating the badges and incidence of slavery under other names became very creative about using all the other virtually unlimited powers they had under Enumerated Powers Federalism to essentially re-enslave the population that had been emancipated.  This was considered to be a problem, a problem with federalism, and it was a problem that was addressed by the 39th Congress when they wrote the Fourteenth Amendment. The Fourteenth Amendment was a radical alteration of our system of federalism and represented a separate, a new, a distinct vision of federalism, which, in this paper, I call Fundamental Rights Federalism.   Fundamental Rights Federalism was a qualification of the earlier Enumerated Powers Federalism.  It did not eliminate the Enumerated Powers Federalism.  It combined with it.  It said states may do anything they like that Congress or that the federal government has not -- states have all the powers that are left over after the enumeration of powers to the federal government but they may not violate the rights of their own people. States have all the powers that are left over after the enumeration of powers to the federal government but they may not violate the rights of their own people.  They may not violate the privileges or immunities of citizens of the United States.  So they may not make laws that violate the privileges or immunities of citizens of the United States.  And in the application of those laws to particular persons, they have to use, they have to accord with, they have to provide a due process of law, that is, in applying these laws that don t violate privileges and immunities to particular persons, they have to do so accurately and fairly, due process.  And when it comes to enforcing the laws, they have to enforce these laws equally.  And when it comes to the protection of the laws, so that you have a general law against murder, but some people in the community are being murdered and the Sheriff is looking the other way, no, equal protection means everyone gains the equal protection of the laws that otherwise don t violate privileges of immunities, at least on their face. So what was put into place was a radical restructuring of federalism.  States still had all these discretionary power, but they had side constraints on how they could be exercised so that they couldn t violate fundamental rights.  Why?  Because states could be an engine of tyranny.  What kind of tyranny?  Might states be an engine of slavery?  That s tyranny.  That is the ultimate tyranny and that s what American states were practicing.  Some of them were.  Some of them weren t. All right, so now we have a new vision of federalism.  And the vision of federalism says that the federal government, in the form of the Congress, because Congress is specifically authorized to do this and also the courts, because that s what constitutional constraints allow, as the empowerment of the courts to also step in, that the Congress and the courts could both protect fundamental rights from abuses by states.  Now that is a major change in our theory of federalism, and I think, an important one.  And the Constitution that I would defend, the original Constitution that I would defend, on an originalist ground, as being worthy of adherence, is the Constitution as amended by the Thirteenth and Fourteenth and Fifteenth Amendments, and not the original Constitution. But what happened?  Well, what happened is that both of these strategies of federalism, both the enumerated powers federalism and as modified by fundamental rights, the fundamental rights version of it, they all consisted of what Madison referred to as parchment barriers.   And by parchment barriers, it meant they were written down on paper.  And it was expected or it was hoped that the judicial branches would enforce these barriers.  But Madison was very skeptical about the efficacy of parchment barriers because his experience and the experience of others like him was that courts really did not do very much to protect these rights that are put down on paper.  And that s why he obviously invested so much time in his structural protections of individual liberty, as well as government power and all the other things that the structure of the United States Constitution provides because he was skeptical of parchment barriers. Well, the problem with these two doctrines of federalism, in terms of maintaining their efficacy, was they are basically parchment barriers and they rely on traditional enforcement.  So what happened?  Well, we know the story.  We all know the story of what happened.  It s a long interesting, complicated story.  I can only allude to it here, just to remind you of it.  But obviously, the first piece of the story happened five years after the enactment of the Fourteenth Amendment.  And that is the Slaughter-House Cases was decided which gutted the heart and soul of the Fourteenth Amendment, I mean, after the Citizenship Clause, which is, in some sense, the heart and soul of the Fourteenth Amendment.  Once you ve gotten citizenship to everybody, then the heart and soul of what s left is the Privileges or Immunities Clause that says the state shall make no law that abridged the privilege or immunities in the United States.  That was gutted.  And if you go back and you read the Slaughter-House case, the 5-4 decision that is the Slaughter-House case, you will see that the principal constitutional argument for gutting it is, This is just too radical.   That s the principal argument made in the majority opinion.  It s too radical.  In fact, it s so radical that we don t believe that this is what they meant to do because it s just too radical.  We can t impute to them this intention to do something this radical. But it s exactly what the Republicans in the Thirty-ninth Congress meant to do.  They meant -- they were radicals, they were influenced by radicals, they meant to be radical, and they were really disheartened.  They were like hit in the gut when five years later, the Supreme Court just took out the principal, the flywheel, of the Fourteenth Amendment and eliminated it.  So the first parchment barrier was gone. Now eventually, the Supreme Court did come back and start expanding the two remaining parts of the machine, the Due Process Clause and Equal Protection Clause to occupy some of the space that had been vacated by the excision of the Privileges or Immunities Clause.  So the Due Process of Law Clause started to be applied to laws that violate fundamental rights, and the Equal Protection Clause started to be applied to laws that discriminate, which were both functions that were originally supposed to be performed by the Privileges or Immunities Clause.  And that went along okay, and some sensed it started to move things back in the direction of what the Fourteenth Amendment, as a whole, was supposed to do, with respect to fundamental rights federalism. But then, as we all know, there was a change in the courts.  And with the change in the courts, we had a new doctrine.  And the new doctrine basically was this New Deal doctrine of judicial restraints, supposed judicial restraint, and allowing sort of an unlimited power in the federal government or I think, to put it the way Jesse will put it, is it s a power that s constrained only by political mechanisms.  It s not going to be constrained by the judiciary.  Now this, the Court never - it highly adhered to this doctrine.  In fact, it never entirely articulated this doctrine.  It never entirely gave up scrutiny under the Due Process Clause and other devices but, as a practical matter, it did and it did so gradually. So what ultimately happened was, as you know, was we had a virtually unlimited federal power given to the federal government under, essentially, the expansion of three clauses or two clauses, but I say three clauses:  The Commerce Clause combined with the Necessary And Proper Clause.  It s really the Necessary and Proper Clause that does almost all the work in these New Deal cases and after New Deal cases.  The Commerce Clause does very little work.  The original meaning of the Commerce Clause was really not touched very much by the Court, but the Necessary and Proper Clause was greatly expanded.  And then the Spending Clause, which has already been - or the spending power, there is no Spending Clause.  The power of government to spend tax money, which is not enumerated there, but which is really part of the Necessary and Proper Clause.  And so along with the expansion of the Necessary and Proper Clause, on the regulatory side came the expansion on the spending power side.  It was the very the same thing.  So it s all in the Necessary and Proper Clause.  That s how they did it. Now what s the result of that?  The result of that is the virtually unlimited power of the state.  Now what has been the response of the courts, of the federal government?  What s been the constitutional response of the courts to that?  Well, it had two parts.  The first part, the earliest part to emerge was the doctrine of fundamental rights.  Not fundamental rights in the Fourteenth Amendment sense, of across the board fundamental rights of liberty, but specific, identifiable, fundamental rights that the Court, in its wisdom, would deem to be fundamental -- rights that the Court in it s wisdom would deem to be fundamental and get special protection.  And these rights included most of the Bill of Rights, most of the enumerated rights in the Bill of Rights, not including the Second Amendment until very recently. Allan Gurr [phonetic] is in the room.  Everybody give Allan Gurr a big hand.  Yes, give Allan Gurr a big hand. And so that s part of the fundamental rights.  And then they decided they would protect some unenumerated rights at their discretion, like the Right of Privacy, that they deem to be fundamental.  So essentially, what you have here is a system of unlimited governmental power at the federal and state levels, I mean, in the sense that the federal government has the power but so does the states.  They all have theirs, whatever powers the federal government lets them have, qualified by certain specific identifiable rights, the fundamental rights, so you have some qualification. Now what didn t happen - so what happened next was the New Federalism of the Rehnquist Court, which I don t have a real pithy name for, but for purposes of this talk, I d call it Affirmative state Sovereignty Federalism.   And this affirmative state sovereignty federalism is really akin to the fundamental rights federalism.  Fundamental rights federalism is a way of saying, okay fine, there are certain privileged spheres or zones in which the state cannot intrude into your individual life.  Affirmative state sovereignty federalism says, Fine, we re going to concede that the federal government has this virtually unlimited power under the Necessary and Proper Clause, but we understand that the implication of that is we could just basically wipe out the states.  And so in order to prevent that from happening, we re going to do for the states what we are sort of halfheartedly doing for individuals, if we re going to carve out certain individual, judicially protected spheres or enclaves for state power.   And that s the new federalism. Now the new federalism, which is supposedly grounded in the Tenth Amendment and the Eleventh Amendment, and we could go on to this more later whether it really is or not, I think really, it doesn t really reflect the original meaning of either of those two amendments.  The Court doesn t say that it does.  In fact, the Court does the same thing that the left wing of the Court does, and that is, they say it s based on the underlying principles of those amendments.  The underlying principle of the Tenth Amendment is federalism or state sovereignty.  The underlying principle of the Eleventh Amendment is state sovereignty.  So we re going to protect state sovereignty, directly.  And that is the new federalism, affirmative state sovereignty federalism.  So is that a good thing or is that a bad thing?  I ll leave that to discussion.  I will just say this, in some sense; maybe it moves things back in the direction of what the overall structure of the Constitution, the original meaning of the Constitution says, as amended by the reconstruction amendments.  And that might make it a good thing. But it s a bad thing in the same way that the Supreme Court s fundamental rights -- individual rights doctrine is a bad thing because it moves the Court further and further away from the text of the Constitution as its guide, on what both the rights of individuals should be, the rights retained by the people under the Ninth Amendment, and also what the rights of states would be, and that is the rights reserved under the Tenth Amendment as qualified by the Reconstruction Amendments, which put some federal constraints on state power. Michael S. Greve:  Thank you, Randy.  Jesse. Jesse Choper:  Same place [inaudible].  I want to say at the outset something that I ve said each time I have spoken to a program run by the Federalist Society, and that is, and there have been quite a few of them, but I am not a member of the Federalist Society, but I really do admire the quality and objectivity and some real effort to rip apart questions from all points of view that are put on at these programs.  It has always been a pleasure for me to participate in them. So the title of this particular panel is Judicial Review of Federalism, and I want to echo Randy s comments about the really interesting, provocative, stimulating, complex discussion that we had in the beginning, the first panel.  What I want to emphasize is that there was virtually -- there is, it seems to me, virtually nothing that we re going to talk about, in respect to the question of judicial review and federalism, in what went on at that first panel.  Now I ll just leave it there for the time being. So what - if you look at the introductory description of what this conference is, it s how should we balance state and federal rights?  That s what this is all about.  And then there are two sets of questions: first, can we make better progress on these issues by allowing states to pursue their own policies independently or should the federal government take a more active role.  I have no strong judgment in respect to that question.  I do favor limited national power.  For example, in the Lopez case, the Gun-Free School Zones Act case, if some member of Congress had asked me, not that they ever do, is this constitutional?  Should I vote for this?  Is this within national power?  I would say, Probably not. So nonetheless, this leads us to the second issue, and that is: should the courts take a more active role in limiting federal power or should they instead leave the federal state agenda to the political process?  On that, I have a strong view.  Although I ve already indicated that the Gun-Free School Zones Act was bad constitutional policy, I thought that the Lopez ruling was an inappropriate exercise of judicial review.  So let me move on to that.  I see some frowns.  How could that be?  Well, it could be. Thirty-one years ago, that s scary, I must have been 14-15 years old, I took the position that the Court should not decide constitutional questions in respect to the power of the national government, vis-�-vis the states, that it should be treated as non-justiciable.  I deliberately avoided the use of the phrase political question at that time, although that s exactly what I meant.  But I didn t think it - I thought it would divert people s thinking.  I just called it non-justiciable .  I did not urge this is a matter of original intent, not that I m unsympathetic, to looking to basic original understanding, but to the extent that I looked, it seemed to me to be unclear.  I always had some real questions as to the original understanding in respect to the whole exercise of judicial review.  There s much to be said for it.  There s also much to be said against it.  Rather this is - the subtitle of the book I wrote was A Functional Reconsideration of the Role of the Supreme Court. So what is the rationale for saying that issues of national power versus states rights should be held beyond any political questions?  Well, first of all, as a matter of structure and process, I took the view then and I still believe it quite strongly, that state interests are well represented.  And by the way, there s a nice issue, and I won t go into it, it s how do you determine who articulates the interests of the states?  But let s leave that.  Put that aside for the moment.  That state interests are well represented and sympathetically considered in the national political process, the strongest evidence of that is the equal representation of the Senate, which I think, the population figures probably still show that if you really lined up the 51 votes from the smallest states or indeed, 50 votes is all you need, stop at 50, the 25 smallest states cover not much more than 15 percent of the population of the country. And by the way, you have to have 51 votes in the senate to get anything done in respect to the enactment of legislation.  And that s number one.  And on the airplane today, I recommend to you an article by Bradford Clark in the recent issue, just came out of the Notre Dame Law Review, in which he really focuses hard on what the purpose of equal representation was, and that talked about the anti-federalists being the anti -- unsympathetic to states rights.  Well, that was the price of getting them to go along.  Okay, enough of that.  We also -- the states interest are strongly represented in the House of Representatives.  We have the biggest, we, California, have the biggest congressional delegation there.  They clock us frequently to take positions on national legislation and they are not there just to exchange personal views.  It s from the standpoint of the State of California and certainly in the executive branch as well.  State interests are strongly represented there. I think the dynamic that you want to understand and the most important part is that laws that allegedly exceed national power and impinge on the territory of the states require very wide support through both Houses of Congress and the Executive Branch before they re enacted.  As we all know, there is an enormous inertia in the national lawmaking process and that all works to protect states rights from national intervention. Before a proposal becomes law in our national government, you have to go through a whole series of obstacles, beginning with the ability of the committees to bury legislation, the proposed legislation, in some black hole.  Lobbies, which are not unimportant in getting legislation enacted, are much more effective in stopping legislation from being enacted.  The filibuster doesn t need it and the Senate doesn t need any explanation.  It s perfectly clear that you don t need 51 votes to pass a law today.  You need - where the rubber hits the road, you need 60 votes, which is -- I m not a mathematician but you can do the numbers.  If 15 percent of the population is represented by 50, okay. And finally, the presidential veto really raises the ante to a very substantial degree.  They all act as negatives.  There s a lot of talk, and I think wise talk, about the anti-majoritarian nature of the legislative process.  But when it comes to determining whether or not the legislative process has abused states rights, has moved into the sphere of state of authority, whatever that is, it s taking an awful lot.  Okay, so that s a matter of structure and process.  Secondly, as a matter of substance, I think there s an important distinction, and I argue this is an important distinction, between states rights and individual rights, which are the two of the three great divisions of power that we have under the Constitution.  First of all, federalism, it seems to me very different, because as a matter of -- it turns on a matter of practicality.  After all, the major purpose of the second Constitution, if you will, after the Articles of Confederation, was to enable the national government to exercise power in respect to matters which the states -- and a phrase someplace there -- which the states were separately incompetent to deal with.  This is a very practical, political, fact-oriented, and fact-based issue, as opposed to the matter of individual rights, which do not get sympathetic consideration in the national political process.  Indeed, the very purpose of the Bill of Rights and individual and the few that existed in the original Constitution was to say, You can t do this even if you want to.   The majorities are not going to be sympathetic.  Take a look at the Bill of Rights.  The great majority deal with the rights of those accused of crime, that s not a very politically powerful group as a general proposition or unpopular political and religious groups.  So they re not there. When we hold something unconstitutional, it s not a matter of it s because they re impractical.  It s just that our ideals reflected in those provisions of the Constitution prevail over the short-run efficiency of squashing those ideals.  The issue was certainly put, not easy to resolve, but when you see the question of national security versus individual rights.  So as a consequence, I think Congress is at least as good where the political process, the politically accountable elements of the government; just as good or better than the Supreme Court in determining the question of what are the problems in respect to which the states are separately incompetent to deal?  And consequentially, there is no need, in my judgment, for the Supreme Court to exercise this antimajoritarian power of judicial review, an enormous power and one that continues to create real tensions between representative democracy and the kind of rules that the Supreme Court, a quite antimajoritarian agency -- I won t go into that, hands down. And in addition to that, declining to exercise judicial review over these questions which get questions of states rights, federal power versus states right, which get a strong hearing in the national political process, preserves the Court s political capital, if you will, which is easily dissipated.  I ve certainly seen that, just in my time, in areas where they re really needed because federalism issues not only invalidations of congressional power, but validations of congressional power by the Supreme Court, which would be avoided if it were a political question, have gotten the Court in lots of trouble, in lots of trouble over the years beginning with McCulloch against Maryland. So, I want to talk just a couple more minutes about the scope of this notion, maybe anticipating some of the negative reactions that you ve had so far to a proposal, which ordinarily does not fly readily in this audience.  It s a broad proposal.  It applies not only to the regulation of the States Qua States, but to private regulations of private persons within the states.  That s the Gun-Free School Zones Act case or the Violence Against Women Act case.  And it applies to all exercises of national power.  The spending power, the taxing power, the treaty power, executive agreements entered into by the President which allegedly impinge on states rights, all right?  But importantly, it does not apply to a Supreme Court review of the validity of state regulations that allegedly interfere with national power.  And this, the most prominent example is the Dormant Commerce Clause.  Why?  Because unlike the situation of state interests being powerfully represented in the national political process, national interest, nor the interest of out of state people are not well represented in the state political process.  We had some extensive discussion about that, I think that goes without saying.  And secondly, and, for me, at least of equal importance, is when the state - when the Court strikes down, invalidates a state regulation because we say it violates the Commerce Clause or the Dormant Commerce Clause, it is not an exercise of the power of judicial review.  They have not held - they ve held the state statute invalid but their decision can be changed, which we also talked about the McCarran-Ferguson Act, by an ordinary act of Congress.  So the Court is not exercising the final word.  It s really no different in structure than a statutory interpretation decision, and therefore, doesn t apply to that. And I want to say the Supreme Court is not without strong influence over issues of national power versus states rights, under my theory.  That is there s nothing stopping the Court from adopting a rule as it did in Gregory against Ashcroft.  There s a requirement that before a federal statute will be interpreted as applying to various state functions, that you have to have what they call the plain statement rule or the clear intentional rule , that again, that can be changed by Congress.  But, you know, you can put the congressional feet to the fire, if you will, under those circumstances.  And I should say issues of statutory interpretation like that are, I don t want to say always but almost always, open to the Supreme Court, as it was in Ashcroft.  They said Gregory against Ashcroft, it involved the Age Discrimination and Employment Act, one that people like myself are quite sensitive to.  And it applies to everybody.  The Supreme Court said, Well, if it applies to judges, you better say so.   That s a somewhat shorthand description of the Court s rationale, but that s pretty much what it said. So 30 seconds more, may I?  So the high watermark for this, a pretty, how should I put it, unconventional position, which was it should be non-justiciable, was at least in part adapted by the Supreme Court in the Garcia case in the middle 1980 s, when the Court upheld Congress s power to apply the Fair Labor Standards Act to state employees.  But that was the high watermark and that s now almost 25 years ago.  I have every reason to believe that the current five justice majority on the Supreme Court is unsympathetic to the decision in Garcia.  I go so far as to say that if the same five have been there, they wouldn t have decided it in that way, and they certainly are not about to extend Garcia, the current five justices, beyond where it applied, and that was a federal law, that was a law of general applicability and included the states within the area of regulation. Whether if the five hang together in time to overrule Garcia, that s a different question and involves very different considerations of stari decisis and where they re going to go.  They certainly could have done it several times and declined to do so but were still able to reach the result that they did in striking down the federal legislation in New York against the United States, Prince against the United States, and about 15 cases, actually, that they ve decided since then. The interesting thing is when I wrote this in 1977, there was only one majority decision of the Supreme Court that had held an act Congress beyond its power as violating states rights.  And that was the famous Usury case, which was overruled in Garcia, since 1935.  That s an important qualification.  There was only one since 1935 in which they did that.  So in reality, what I was urging then was no change in practice or result but a marked distinction in the rationale that they use for not overturning state legislation.  Thanks. Michael S. Greve:  Thank you very much, Jesse.  I ve been tasked with moderating this panel.  And I want to - I ll give the panelists a chance to respond to each other more directly if they so choose, and then we ll leave ample time for questions from the audience and further discussions.  Just to kick this off, I want to ask each panelist one question. Randy, it would be useful, I think, and instructive for the audience if you could talk a little bit about the Raich case, which you handled yourself, because we would benefit from an insider s perspective.  This is, you may recall, the case involving the -- how should I phrase this-- California s Medical Marijuana Laws and the question of whether the federal substance control, Controlled Substances Act, blocked or trumped what was - I take that back.  My question about the case is the following: to your mind, was that a case of what you called enclave federalism or reserved powers federalism, in the sense that much hangs on the fact that California has this medical marijuana statute?  Or is it a case of -- is it a straightforward, clean, pure enumerated powers case, to your mind?  And related to that is the second question, when you describe the reserved powers or enclave federalism, are there elements in the Supreme Court s federalism that, to your mind, a more reminiscent of enumerated powers federalism, as amended through the Fourteenth Amendments and so forth?  That s my question to Randy. And let me ask the question of Jesse as follows.  I suspect there would be members in the audience who would be a whole lot more comfortable with your position if the Supreme Court extended its deference or standoffishness, not only to conflicts between Congress and the states, but also to its own interventions in this area.  It s one thing to say, sorry, states can represent themselves in the political process, and then to say we ve -- and one advantage of taking that position is we preserve our political - we, the Court, preserve our political capital.  If you look back, what has the Court invested that capital in?  Answer: Uniformly and consistently, cases that, whatever you think of the underlying merits, severely constrained the authority and the ability of states to govern themselves and their own internal affairs.  It s one thing to say, We take a position of standoffishness and neutrality in the political process, and representation.  We ll do what they will do.   It s a very different thing, people might say, for the Supreme Court to be standoffish at one end and then take sides in an area that s ostensibly not about federalism but has these very profound and consistently adverse consequences for the states.  So why don t we start on those questions? Jesse Choper:  I thought he was going to ask me to comment [inaudible].  You go ahead. Randy Barnett:  Okay. Michael S. Greve:  Are you conspiring? Jesse Choper:  No.  I said I should say.  I said to Randy, why don t I answer first if we re supposed to comment on each other s -- because I can answer mine very easily?  I agree with everything you said.  And it was a perfectly -- Male Voice:  [Inaudible] Randy Barnett:  Well, Jesse said -- Jesse Choper:  But he has a different question. Randy Barnett:  Right.  So Jesse said I should go first again.  I do what Jesse tells me to do.  That s it.  You have this authority of a former dean, Jesse.  The thing is, I don t obey my current deans.  I only obey former deans. Jesse Choper:  That s all right with me. Randy Barnett:  So to talk about the Raich case, I think the Raich case, first of all, in terms of what we argued in the Raich case, and for those of you who don t know the whole history of the case, I and two other lawyers brought suit to challenge the application of the Controlled substance Act to two women in the State of California, Diane Monson and Angel Raich, and so it was not a facial challenge to the constitutionality of the Controlled substance Act but was a challenge to its constitutionality, as applied to their situation.  Diane Monson grew cannabis in her backyard to treat severe back pain and spasms that she suffered from, which were nonresponsive to conventional pain relief, and Angel Raich suffers from a variety of ailments that result in a wasting syndrome, which she uses cannabis to resist.  Cannabis is actually quite effective in that sort of thing.  And in fact, she had been wheelchair-bound prior to discovering that cannabis was effective in enabling her to maintain her strength and keep her weight on.  She doesn t grow it herself but she had caregivers that grow it for her, at no cost to her, so no money is changing hands, in either case. So we have challenged the constitutionality of the Controlled Substance Act as applied to these women.  We did make both enumerated powers federalism arguments and state sovereignty federalism arguments, and that s why I said I got confused when we had private discussions about which one was our federalism argument because they both were or neither was, or I wasn t sure which was which.  Our state sovereignty federalism argument didn t go very far.  I mean, no court, at any level, including the Ninth Circuit who ruled for us on the enumerated power s theory, was at all enamored with that idea, for a variety of reasons.  The Supremacy Clause loomed very large in the rejection of any notion that there was a traditional function of states in providing, for example, the regulation of medicine.  The regulation of medicine is traditionally done by states.  I mean, if you get a medical degree, you get a license to practice medicine from the state.  You don t get it from the federal government.  That s just been a traditional state function.  And what the State of California was doing along with 11 other states, I should say, was saying that in the practice of medicine, you can do this.  You can use it.  It was a physician-regulated administration of this particular substance under its law.  It didn t call it a prescription because to call it a prescription would implicate federal law, and so the statute talks about a recommendation, instead of a prescription.  But the recommendation was necessary to legalize this use, possession-use. So we made an argument like that, in part, to appeal to Justice Kennedy, who had written a state protective concurring opinion in Lopez.  He did not buy into the enumerated powers arguments of the Chief Justice or the concurring opinion of Justice Thomas, which by the way, in both Lopez and Morrison, Justice Scalia did not join, just to be clear because if there s still anybody out there that thinks these two Justices are clones of each other, Justice Thomas had an enumerated powers argument in his concurring opinion on Lopez and Morrison and Justice Scalia did not join those opinions.  He joined the majority opinion by Justice Rehnquist, which left unchallenged the New Deal expansive notion of federal power. So, we had this argument in our briefs in order to appeal to Justice Kennedy.  You see how far we got.  For those of you who don t know the lineup, we lost 6 to 3 and we had votes from Justice O Connor, Justice Thomas, and Chief Justice Rehnquist were the people who voted for us.  If I tell some of my progressive friends that that s who voted for us, who don t know much about, don t follow constitution law, they are like astonished.  They can t believe that s who voted for the medical marijuana people.  But there are good reasons for us to understand why that s true. Anyway, what s really challenging is to tell them that all the good progressive justices voted against it.  That s something that I like to bring up frequently.  So anyway, so that didn t go very far.  The one that - but I think it should have.  I mean, if you re going to take this affirmative state sovereignty notion seriously, the regulation of medicines seems to be a traditional state function and it s something that the federal government was interfering with with their regulation of interstate commerce.  And so, and as applied to this situation, not that the federal government wasn t perfectly free to regulate interstate commerce in all of these substances, we never challenged that, no one has ever challenged that constitutionally, but only that as applied to the states scheme, they were interfering with the operation of the state regulation of medicine.  It should have gone far.  It just didn t get anywhere.  So what the case ended up being about, and the only thing that the Court opined about, was the enumerated powers argument that we d won on below.  Because we didn t win on the state sovereignty argument, we did win on the enumerated powers argument.  That s the only thing that the Court dealt with.  And to that argument, I think that this is a good illustration of why it is that judicially protected federalism is a boon for individual liberty.  Now that s something that Justice O Connor has mentioned in her numerous federalism arguments.  And it s something that critics of federalism, critics of those opinions, critics of her, have ridiculed, or at least they have disparaged.  I mean, how realistic, how meaningful is it that federalism or enumerated powers federalism is a protection of individual liberty?  Why would that be true?  Well, I think our case illustrates why that s true.  This is really my response to Jesse also.  One response to Jesse which I m not going to do is to kind of go through the political science considerations that the first panel did.  I couldn t do it as well as the first panel did, but you could go through all of those different situations.  I m just going to do a sort of just a standard judicial protection of liberty idea.  How does the enumerated powers protect liberty?  Well, let s take the Gun-Free School Zones Act first very quickly.  The Gun-Free School Zones Act said that it was unconstitutional for the federal government to say to ban guns within a thousand feet of a public school.  That, indirectly, protected the individual right to keep and bear arms.  You didn t have to litigate the individual right to keep and bear arms, but that s the effect that it had.  So it had -- the limitation on federal power indirectly protected -- it meant you didn t have to reach a claim about individual liberty because the individual liberty was being protected indirectly.  Now it is true that that same power, that same right, that liberty under this enumerated powers idea, would be subject to state regulation.  And in fact, there are Gun-Free School Zones Acts in the states.  So that s something you d have to look to the Fourteenth Amendment to deal with.  Because we don t have a pure system of federalism, we have fundamental rights federalism in the Constitution.  But the enumerated powers federalism would have had that effect in the Gun-Free School - did have that effect in the Gun-Free School Zones Act case.  Now in our case, our case really illustrates the close connection between individual personal liberty, including, not only the liberty to use a particular substance to ameliorate pain, but the liberty to preserve one s life.  There are sections of this country who have a different opinion about the use of marijuana than other sections of this country have.  And what the people who felt this way about the use of marijuana did was they organized in their states.  Now they couldn t get these bills passed by their own state legislatures, but what they did do is they used the referenda and initiative processes in these various states. So they organized politically in the states in order to protect their liberties.  And essentially, what the Raich case says, I mean, we can argue about what the real import of the Raich case is.  I think it actually would have a very limited import if the Court ever wanted to revive its federalism jurisprudence.  It will have a maximum import if they don t.  But what the Raich case basically does is it overrides the ability of individuals to organize locally in order to protect their liberty.  That s what it does.  What Justice Pryor said to me in oral argument is, Why don t you just go to the federal government and get your protection there?   And the answer is it s very difficult to do as an individual.  This is a response to Jesse s process-based argument, the sort of the Ely-type [phonetic], process-based, argument in favor of individual liberty.  It s very difficult for an individual, particularly an individual who represents a minority constituency in the country as a whole, to go to the federal government and get this kind of protection. The federal regulatory process on this subject is completely rigged, totally rigged.  That was my response to Justice Pryor in oral argument, just to have him read the briefs which describes how rigged the process is, if that s the process you want to rely on.  But it s been rigged.  It s been rigged for political reasons because there is not a national constituency in favor of legalizing marijuana.  It s a matter of debate. However, individuals have it within their power to organize locally, and that s what s happened in 11 states, and what the Raich case does, it said, We don t care about that.   So that s the enumerated powers part of it.  What happened next, and this is a wrap-up, what happened next was, is of course after we lost, we were remanded to the Ninth Circuit and then we got to argue our Due Process Clause argument, which we d always argued and which we had a ruling on, and we lost in the Ninth Circuit.  And we lost because the Court used the standard Glucksberg approach which says that the only liberties that get protected are those that are deemed by the Court to be fundamental, and the only ones that are deemed by the Court to be fundamental are those that are deeply rooted in the nation s traditions and history and, and here s the critical putting the rabbit in the hat, we will define the liberty in the narrowest, most specific way it can be defined. So we argued, on remand, that the liberty that was being jeopardized was the right of Angel Raich to preserve her life.  Diane had dropped out of the case.  We could focus on the right to life.  We thought that was pretty fundamental.  The government argued that the right at issue was the right to smoke marijuana for medical purposes.  That s very narrow.  Now which one would you say is deeply rooted in the nation s tradition and history and which one is not?  And however you answer that question, here s the dirty little secret of constitutional law: both formulations, both descriptions of the liberty are accurate.  What was at stake in our case was both could equally well be described as the preservation of life on the one hand or smoking marijuana for medical purposes on the other hand.  They re both accurate. So what the Court s doctrine is, is you pick the most specific version of the accurate descriptions of the right, and once you picked the most specific version, you re going to find it s not deeply rooted in the nation s traditions and history, end of case.  Case dismissed.  That s exactly what happened to us.  So that s the way it s done.  That s the way the game is played.  This way, liberty doesn t get protected at all.  If the enumerated rights line had been held, you never would have had to get in to any of this.  And that s the advantage for individual liberty of restricting enumerated rights, enumerated powers, I m sorry. Michael S. Greve:  Jesse. Jesse Choper:  You got unlucky with the panel.  I don t know who was there, but we won t go into that. Randy Barnett:  That s a very good question though.  Let me just say it was a two-to-one liberal panel.  Two to one. Jesse Choper:  Who were the two? Randy Barnett:  I m not going to name the Justices.  But there was a two-to-one liberal panel.  But my view is: why did the liberals who ruled for us, two-to-one on the Commerce Clause challenge not rule for us on the fundamental rights challenge?  I think it s pretty clear.  The reason is as they predicted, and I think they predicted accurately, that the Supreme Court would reverse them if they ruled for us, having reversed us.  And I think they re probably right about that.  So if the job of the Appellate Court is to predict what the Supreme Court would do, they predicted probably correctly.  And frankly, I was grateful because it was painful enough to make bad law on enumerated power scheme.  To have been the person to have brought a case to make bad law on two doctrines I care about would have just been too much to bear. Jesse Choper:  I think that the Raich case is really a good one to use as a platform for discussing the difference of use that we had and I think I can include because Randy did -- your discussion of the Supreme Court, being very activist, under my theory, in protecting individual rights and being out of it so far as states rights are concerned.  Okay.  Interestingly, we both disagree with what the Court did in the Raich case, all right?  Randy has already indicated why he disagreed.  He thinks they came to the wrong conclusion on the merits.  I disagree because they even reached the merits.  He got three votes.  I got none.  So that, comparatively at least, is a victory. I think the Raich case indicates the great weakness of the Court s effort to revive the judicial protection of states rights, which was the signature issue of the Rehnquist Court.  It is perfectly clear to me that if you took seriously what they said both in Lopez and Morrison, the Gun-Free School Zones Act case and the Violence Against Women Act case, that growing your own marijuana, and this was homegrown marijuana to be used for medicinal purposes, which were the facts that you argued and stressed, no more than that, was not an economic or commercial transaction.  And to the extent that the Court gave us any guidance as to what is protected or what is beyond Congress s power under the Commerce Clause, this looked like it, to me. Nonetheless, the elasticity of that standard was demonstrated in the Raich case.  Indeed, as was pointed out, even Justice Scalia said, Well, this is part of an interstate market and therefore, it can be regulated.   Is that correct?  It s hard to see exactly what he was saying, but he said this, Marijuana is an interstate market.   Well as I said, so is the wheat in Wickard against Filburn, which he certainly didn t agree with.  Now he didn t give us an explanation for that.  I m not saying he could because I don t think that there is any really manageable standard that they can use.  They want to use something.  They want to use what is somewhat more manageable as historically within the sovereign authority of the states, like education, right?  But as you pointed out, this medical treatment is historically regulated by this.  So anyway, it shows the weakness of this notion.  That s another reason I didn t burden you with that in the beginning, and that is they can t come up with any reasonable standard, the Court cannot, to determine what is left to the states.  They can t carve out those notions or look at the end of the power. Okay, so then comes the issue, and I move on, the issue is well, what about the notion that federal, and this is in many ways, it s, I think, the strongest argument against my position.  And that is that federalism, here I am saying the Court should be very active in protecting individual rights.  I didn t say how active they ought to be in defining what they are because I certainly don t want to say that I m a regionalist because I think it s so difficult.  But I am very sympathetic to what also Randy said in this paper about these very elastic standards giving the Court the power to knock down anything they find to be a fundamental right.  So the bottom line is that while I believe in aggressive enforcement of individual rights, I don t believe in substantive due process except to the extent that they apply the Bill of Rights to the states, because there, at least you have articulated rights and you have the thinking of the Founders as to what they had in mind in protecting. Consequently, much as I was sympathetic to California s Medical Marijuana Law, and I mean, you really had a sympathetic situation here, I don t think it s a constitutional right.  Now so you say, Well, but federalism therefore, look, it protects individual freedom.   Well, it does in a way.  But I don t think it protects individual constitutionally protected freedoms.  You said it all.  It s just we sort of differ at the jump-off in the end.  You said, well, Gun-Free School Zones Act, it was a Second Amendment.  Yes, they did avoid the Second Amendment issue, but it s a right that is not a constitutionally secured right, unless the Court says so.  Maybe it has the last term that the Second Amendment, although they don t say it applies to the states so far.  And that would be necessary in the - well, no that s right.  It wouldn t apply to the Texas case either. Texas had a Gun-Free School Zones Act of its own.  If you look at that Lopez case, it s really very interesting as to the way these things work.  He was originally indicted under Texas law.  And then they got rigged and they cleaned off their docket.  The feds came in and said, You take it, which they did.  But you said 28 states have such laws?  Whatever.  A bunch of them have laws against carrying guns near schools.  But the fact is that it wouldn t have done -- it wouldn t have helped Mr. Lopez any and it wouldn t have helped people in 28 states either, unless the Court turns around and then says we have a constitutional right, under the Second Amendment, that applies to the states, to carry the guns.  Similarly, in the Raich case, I thought you had a strong argument, I mean, given the state of the doctrine of substantive due process, with which I disagree.  And it also shows the malleability of that.  It s the difference Justice Scalia tries to make it as narrow as possible.  And the debate was carried on with Justice Brennan.  In fact, those initials to the cases, I forgot the name of the case exactly, but HR against BZ or something like that, in which it was all done in a couple of foot notes.  But they had this big debate over how you determine what are historically accepted practices are.  As you pointed out, how do you characterize the practice?  This had to do with parental rights, and Justice Scalia, very narrowly, visitation rights, I think of an illegitimate father of an illegitimate child, and Justice Brennan in dissent very broadly.  That s the sort of discretion I don t like to give to a non-elected judiciary. And therefore, it seems to me that since states can still do it, if we really want to protect freedom, then it s protected by the freedoms that we -- if we want the federal judiciary to intervene and protect freedom, then it ought to be those that have decent textual support and not those that they don t.  That s my answer.  They re really not individual rights.  States can still do it.  It s only that the difference between individual rights and states rights is individual rights are denial of all power; states rights only say, Well, it s up to the states.  They can do whatever they want. Michael S. Greve:  Thank you, Jesse.  I want to go to questions.  I want to point out or highlight one thing Jesse just said.  Believe it or not, there is a systematic difference between the Gun-Free School Zones Act case, that will be Lopez; and the Violence Against Women Act, that would be United States v. Morrison on the one hand, and then the Raich case on the other.  And it s this, to my mind.  With respect to the Violence Against Women Act and with respect to the Gun-Free School Zones Act, there is no way that you would get genuine policy competition among the states.  It will all go one way.  Most states already have Gun-Free School Zones Act.  All states prohibit, and in fact, criminalize violence against women.  No state will offer or will compete by offering a less full regulatory environment.  If anything, all the competition will cut into a pro-regulatory direction.  So long as that is the case, the Supreme Court s so-called federalism majority is comfortable with it.  Whereas, in Raich, when we re talking about medical marijuana, heaven help us, actual political and policy competition might break out among the states.  And in fact, in that case, there was a wonderful brief by the State of Alabama with Kevin Newsom saying, There s no way a law like that could be ever passed in Alabama.  We are proud of enforcing the Marijuana Laws.  But if they want to have this law, they ought to be allowed to.   That was a forceful brief.  That s, I think, what exactly what the Supreme Court didn t like about it.  Policy competition.  No way because that might deprive us, up here, of our role in superintending the nation s moral conscience, and we can t have that. Questions please.  Yes, Jim?  Sorry, if we could wait for the microphone please, if we have one?  Otherwise, Jim, do me a favor, yell.  If you could, please wait for the microphone and then identify yourself.  Thanks. James Blumstein:  Jim Blumstein, Vanderbilt Law School.  One interesting, fairly recent, development in limiting the scope of the Commerce Clause comes up in the antitrust arena that you may be interested in.  The Sixth Circuit, recently following on a Third Circuit case, has held that a certain -- that the antitrust laws don t apply to certain non-commercial activities, such as eligibility rules for participating in sports under NCAA, for example.  And there s a Supreme Court case that says the antitrust laws were designed to extend to the maximum constitutional power under the Commerce Clause, which would seem very much to cover eligibility rules or anything else, since the Commerce Clause, as we know, is extremely expansive. But I think it s the Bassett case, the Sixth Circuit, very recently, following on a Third Circuit case, held that it did not apply to eligibility rules, or in that case, involving a coach s discipline.  And the coach was attempting to raise an antitrust claim.  And instead of dismissing it on the antitrust merits, which would have been very easy to do because it was a very strained antitrust claim, the Sixth Circuit, following the Third, just said, The antitrust laws don t apply here.   So the implication is that there is a constitutional limit.  Given the earlier Supreme Court case, that the federal government has exercised its maximum authority under the Commerce Clause, the Court has basically said that this is non-commercial activity and the law, that s the maximum power the federal government under the Commerce Clause, is inapplicable to this eligibility rule.  So I just want to put that on the landscape.  That does suggest that there are -- that courts are trying to find ways to limit the scope of federal power and I think ultimately, the implication there, if the earlier case is still a good law, is that this is beyond Congress s power under the Commerce Clause. Jesse Choper:  I would comment this way, Jim, about that.  This is a case of statutory interpretation.  I know you said that the doctrine is that there is no difference between the scope of the statute s reach and constitutional power.  I don t think one can fairly read this case, despite what you said, which is a perfectly good argument, as holding that it is beyond Congress s power to regulate eligibility of student athletes or coaches conduct under the Commerce Clause.  I mean, these are commercial transactions, they reek with commerce, and they are taking it up in this case.  My guess is the Supreme Court would deny a review because they ll look at it simply as a case of statutory interpretation.  And unless there s a conflict, and then you said the two circuits are the same way, the Third and the Sixth, no conflict, no review. James Blumstein:  There is not a conflict at this point, to my knowledge.  The earlier case, it was the Summit Health case, that held that the Commerce Clause did extend and then there s an earlier one, the Rex Hospital case, so there are two earlier Supreme Court cases that said and, in fact, there was dissent and the majority were back and forth about it.  So it was not just an incident of the opinion.  It was a centerpiece of the earlier opinion.  Because in those cases, they were health law cases, where the lower courts had held that basically, the antitrust law didn t apply to various peer review decisions about hospital privileges for doctors and so forth, and dissenters wanted to limit the scope of federal power.  The majority ruled that since Congress went to its maximum authority under the Commerce Clause, of course, it could cover peer review decisions because Congress exercised this maximum authority.  So they rejected that line of case where the courts were split on that issue.  And now it s coming back here. Now there is no split.  I believe that the Third Circuit case that John Roberts, when he was practicing law, may have been involved in that case.  I don t want to assert that.  He was involved in part of that case.  I don t know if he was involved in this part of that case.  But certainly, this is very recent, within the last two months, that the Sixth Circuit has decided the Bassett case.  And so, I just throw that out because ultimately, the argument really is that this is of constitutional import if you put those two cases together. Now the Sixth Circuit doesn t ever address this question.  And so I think it s a fair issue as to whether if that were presented to them or whether they would have ruled the same way.  But this line of reasoning, the courts are looking for ways to limit the scope of federal law.  But if the federal law goes to the maximum of constitutional authority, then they ve got to reconcile these problems. Michael S. Greve:  Could I just answer this for those who don t know this case?  The dissent in the earlier Summit Health case was by Justice Scalia, who regarded the majority opinion in that case as just nuts .  He might in fact welcome hearing that same case again.  Start the [inaudible] up.  I mean, I m not predicting that, but this is a very different Supreme Court now from, what was it, 1984?  Was that it? Male Voice:  Nineteen ninety-one. Michael S. Greve:  Nineteen ninety-one?  Okay.  Yes? Male Voice:  I m really loud.  I don t think I need that thing.  This is for Dean Choper and Randy.  I have never understood how someone can say on one hand, We don t need the Court to protect the states because the states are perfectly well protected from the -- and here s the phrase, ordinary political process of Congress.  Congress cares about states.   And on the other hand say, Its okay for the Court to use a plain statement rule to string in a statute to find that the states are protected.   Because it seems to me, a plain statement rule that strings against other canons of construction to construe, for instance, in Gregory v. Ashcroft the phrase, any person.   That sounds pretty clear to me.  To me, no state judge, any rule like that is presupposing A, the political process does not work very well in protected states so we need to give Congress a nudge to help them protect the states more.  Now if we need to get them a nudge, why can t we give them a shove? Jesse Choper:  Well, the answer, my answer, not the answer, but my answer would be to assume that Congress knows what all its language means, even your argument is a perfectly straightforward, logical, good argument, all right?  And Justice O Connor, I believe wrote the Ashcroft against Gregory, is that right?  I think so.  And she was a great defender of states rights.  She would say, You really want to do this?  You can.   I don t believe you really thought this through when you said all employees.  You can fool with the word employees.   I forgot exactly how that works.  Partners in law firms, this is not my area, partners in law firms are exempt.  Maybe judges are like partners in law firms, instead of being just the faculty or associates in the law firms or what have you. But the big difference to me is the extent to which the Court ought to use this awesome power of judicial review to interpret the constitution.  And what it means, when I say judicial review interpreting the constitution means that the Court has the final word.  That s why the Court doesn t have the final word on Dormant Commerce Clause cases.  They can be overturned and they have been overturned.  I don t say it s easy.  I don t say it s easy at all. But if the Court were to say, in cases of ambiguity, we value the principles behind federalism, behind the reservation of power to the state, behind the delegated powers theory, you want to do it, you better do it clearly.  State interest ought to have a chance to speak up, which I don t think they really - I don t know the history of that statute, the Age Discrimination Act, but I don t think they really had that in mind.  At the time, certain interests were presented.  Academics were presented.  They got a nine or 11-year immunity from the statute and then it expired.  It had a sunset provision. So I think there s a big difference.  Look, let me say this, the Court holds, in the Garcia case, that state employees are subject to the wage and hour provisions of the Fair Labor Standards Act, okay?  And that Congress had the power to do it.  That s what they said.  States and municipalities in particular were very unhappy about this.  Why?  Because you got to pay time and a half if you employ someone for more than 40 hours a week. All right?  Do you know what happened within months?  Within months of that decision, Congress turned around and said, No, it doesn t apply to what s called comp time arrangements for the states, which means we don t pay a time and a half but we give you comp time off.  We can make you work 60 hours this week.  You get 20 hours work credit.   It happens with some right -- if the states really want something, I d tell you, they get it.  A majority.  And if a majority of states -- look, the greatest issues in the country, at the Founding, you guys are the Founder people, had to do with competition between some states and other states.  The clearest power given to Congress is the power to impose tariffs.  If you don t think that divided the states, I don t know, down the middle, but very seriously, that s it, Congress has the power.  States lose.  States lose in the process.  That s just the way it goes. Similarly, it seems to me that that same rationale bodes well.  I don t say it s perfect.  I don t say they re going win every time.  I certainly don t.  They didn t win with the Gun-Free School Zones Act, right?  Twenty-eight states got the law already.  Why didn t they?  Because guns near schools, it s like motherhood and apple pie; you just don t vote against those things, even though they should have, in my judgment. Violence against women is the same sort of thing.  No one is in favor of it.  And very often, Congress will simply respond to it, well, if no one is in favor of it, then we got the power to impose it even though I think there was a lot to be said for saying this is something that the states are separately - with which the states are separately competent to deal and you don t have a race to the bottom issue or all of those things, okay? I ll leave you with one point.  If I were to devise a standard for the issue today, it would be -- this came from the original Virginia plan, it s been argued a number of times -- that the criterion ought to be whether the issue that Congress has tackled is one and which can be demonstrated that the states can t handle by themselves, all right?  Not that it affects commerce or something like that.  Everything affects commerce.  And the Court said that s why we have to put a limit on it.  But the problem is they put a limit that is very, very malleable, as indicated in Raich. Michael S. Greve:  We will take one more question.  I ll change my mind.  You ve had your chance.  Mr. Bader in the background. Mr. Bader:  I was wondering why the Tenth Amendment and the Commerce Clause should be treated similarly for justiciability purposes given that, as Professor Choper has observed, the states are very attuned to protect their Tenth Amendment interests in cases like Usury, very quickly seeking corrective legislation.  Whereas, in the Commerce Clause context, the states are very happy to have the government overreach its powers under the Commerce Clause, as illustrated by the Lopez case where Texas was quite happy to let the feds go in and handle what was, in fact, a violation of state law, and the Morrison case where something like 40 attorneys-general basically filed a brief with the Supreme Court saying, Yes, yes, yes, let Congress regulate, to the broadest extent possible, let them regulate this area.   Given that the states will fight a Tenth Amendment violation through well-funded lobbyists in the Congress but they seem to roll over and play dead in the context of any Commerce Clause issue where Congress is regulating intrastate private conduct, like that involved in Raich, why should we treat Tenth Amendment claims the same as the Commerce Clause claims at issue in Lopez, Morrison, and Raich?  Jesse Choper:  I m not sure I followed you right up to the end of the question. Mr. Bader:  Because doesn t your theory argue that the Tenth Amendment claim should be - that the Commerce Clause should be equally non-justiciable with the Tenth Amendment? Jesse Choper:  The Tenth Amendment claim should be nonjusticiable. Mr. Bader:  Because Lopez involved a Commerce Clause claim and Morrison had a Commerce Clause claim. Randy Barnett:  I think his point was, I want to hear you answer this, is that the states seem - on your argument, based on the argument of the question, is that the states do look after their interest whenever talking about their interest and to the extent that s a Tenth Amendment claim, that s fine.  That could be non-justiciable.  But the question is, with respect to Commerce Clause claims, the states are happy to have the federal government regulate.  And so that s where you need justiciability because the states aren t looking out for federalism in that context.  Is that your question? Mr. Bader:  Exactly. Jesse Choper:  Well, I guess I would say they were always looking after their own interests.  The McCarran-Ferguson Act, which was referred to earlier today, was a question of permitting states to discriminate against interstate insurance companies.  The states always have an interest in having the feds come in and regulate activity within their boundaries.  They have an interest.  Sometimes they re happy.  Sometimes they are not happy.  When they re really not happy, you ll hear from them.  When they are not unhappy, then my question is -- the people who are being regulated by the federal statute have no constitution -- they themselves have no constitutional right to be free of regulation.  Their right is only derivative. Mr. Bader:  But in the Morrison case, the challengers did argue that they had something akin to a right to challenge it.  And in the context of the Dormant Commerce Clause, the Supreme Court has said that Section 1983 claims can assert an individual right based on the Dormant Commerce Clause, which is admittedly in a slightly a different area.  But if there can be an individual right fashioned under the Dormant Commerce Clause against regulation, why shouldn t we?  And now that ll just leave you a challenge to an invalid regulation beyond Congress s power under the Commerce Clause is also implicating individual rights. Jesse Choper:  I see.  I don t think anyone has an individual right under the Dormant Commerce Clause.  And we permit challenges.  We permit third party standing, if you will.  When an individual company has been regulated by the state, which argues if this is contrary to Congress s unexercised power under the Commerce Clause, what we re doing is permitting that individual to assert the rights of Congress.  That s all right with me because they are not raising a constitutional question.  It s the same issue that they would raise if they said, This state regulation is contrary to a federal statute.   Now they are raising a statutory right.  They are not raising any constitutional right.  Here, there is a constitutional right.  But in the end, if Congress doesn t like the decision, they can change it. Michael S. Greve:  Randy, one minute. Randy Barnett:  One of the things that I disagree with Jesse about is that Jesse views the only rights we have as constitutional rights that are protected, of which he says there s very few.  I think that the rights we have, the rights that are retained by the people are very broad, in general.  And then there needs to be a justification for interfering with the exercise of those rights. Federalism is not an end in itself.  Very few people think it is.  Justice O Connor certainly didn t.  Federalism is a means to the end.  And the Raich case illustrates how it is a means to the end of the protection of individual liberty, not the kind of fundamental constitutional rights that Jesse would necessarily see protected, but individual liberty nonetheless, real liberty, liberty of actual real people to preserve their life, avoid needless pain and suffering, et cetera. The last thing I just want to mention because it has been said several times has to do with Jesse s talk about the malleability of the doctrine.  The doctrine was not in the Commerce Clause area.  It was not that malleable.  It was made malleable like anything could be made malleable.  It actually was reasonably straightforward. The lesson that you should take away from this, I ve already given you the three federalisms, here s another lesson I really want you to take away from this.  Most of the expansion that s been done in this area is done under the rubric of the Necessary and Proper Clause.  It s not done under the rubric of the Commerce Clause.  The secret to -- Justice Scalia s concurring opinion in Raich was a Necessary and Proper Clause opinion exclusively.  What he argued was that under a doctrinal exception in Lopez, Congress had the power to reach non-economic activity, which he said this was, not that the economic-non-economic line was so fuzzy you couldn t tell.  He said it was non-economic activity, but Congress may reach it if it is essential to the preservation or the efficacy of a broad national regulatory scheme, which wasn t something that was Chief Justice Rehnquist mentioned in Lopez.  We conceded that exception to the economic- non-economic distinction in oral argument.  We conceded that. However, and here is the secret to Justice Scalia s outcome, he then said that what is or is not essential to a broader regulatory scheme is a matter to be handled by pure rational basis scrutiny.  In other words, we are not going to ask the government to come forward and justify its claim that the reaching of this conduct is essential to a broader regulatory scheme.  We were happy if we could get a hearing on whether it was essential to a broader regulatory scheme to reach this local backyard activity.  But Justice Scalia, I think, had a framework that was okay.  But then by using an extremely deferential approach to what was essential to a broader regulatory scheme, yes, that s how he reached the result he did.  Again, it s all Necessary and Proper Clause.  None of these is Commerce Clause. Michael S. Greve:  It is necessary and proper that we end this riveting discussion now.  We ll have a very brief break and then go out for dinner, so to speak.  Please join me in thanking Dean Choper and Randy Barnett. [Break 3:24:16 -3:42:47] Michael S. Greve:  Ladies and gentleman, please keep eating but we should move the proceedings along.  Again, my name is Michael Greve.  I m with the American Enterprise Institute.  If you ve been here throughout, you ve probably had just about enough of me now.  And I promise you, I will disappear after the following announcements, but it s my distinct honor and privilege to introduce my friend, Judge William Pryor of the Eleventh Circuit Court of Appeals.  Before I do so, a few more announcements.  Judge Pryor will take two or three questions after his talk.  We will then immediately, without a break, proceed to the final panel of this conference, which will be moderated by Ashley Parrish, a dear friend of AEI s and a partner with the law firm of Kirkland & Ellis here in Washington D.C. Judge Pryor and I have known each other for many, many years now.  It seems to be an eternity, and I will not disclose all our youthful indiscretions, least of all his.  Judge Pryor graduated from Tulane Law School.  He clerked for the distinguished and celebrated Judge John Minor Wisdom.  He was the Attorney General for the State of Alabama from 1997 to 2004 when he was appointed by President Bush to the Eleventh Circuit Court of Appeals, and he has served on that Circuit ever since. I want to say a few words about Judge Pryor s career as Attorney General, having earlier ranted against this state s -- categorically, I should now qualify that what usually transpired in federalism litigation and in federalism disputes over those years was 49 states led, then, by client number ten against one state led by Judge Pryor.  In many, many briefs and many, many controversies, what Judge Pryor did in those cases was not to articulate the idiosyncratic preferences of his state but to lay out very carefully the general principles of federalism that ought to guide the law in these areas.  This was true of the litigation over the Violence Against Women Act.  This was true of a longstanding or long running battle over the so-called multistate agreement over tobacco litigation where Judge Pryor, then General Pryor, forcefully articulated the applicable federalism principles that everybody else had forgotten in a series of law review articles and articles in the Wall Street Journal and elsewhere.  I m proud to say or I m pleased to announce that General Pryor managed to institutionalize these principles to a considerable extent in the Attorney General s Office in Alabama.  I mentioned Kevin Newsom, the Solicitor General, earlier, in connection with the Raich case.  Solicitor General Newsom was a General Pryor hire at the AG s office in Alabama. Judge Pryor will speak.  He will, towards the end, take a few questions.  There will be a microphone as usual.  Please announce your name and affiliation prior to asking a question as distinct from delivering a speech.  And please, we re very, very honored and very, very grateful for having Judge Pryor speak to us.  Please join me in extending a very warm welcome to him. Judge Pryor:  Good afternoon.  It s great to be back in our nation s capital to be with a lot of friends, many of whom I haven t seen in a while and I appreciate you being here today.  I appreciate particularly the opportunity to see my friend, Michael Greve, and I thank him for his warm introduction.  In the months following the terrorist attack on September 11, 2001, some legal commentators suggested that the attack had made federalism obsolete.  One of those commentators, Linda Greenhouse, the long time reporter of the New York Times regarding news at the Supreme Court, recently repeated that perspective in a farewell essay published on her retirement.  Greenhouse wrote, But then 9/11 happened and the national mood changed.  Suddenly, the federal government looked useful, even necessary.  The Supreme Court s federalism revolution had been overtaken by events. Notwithstanding Miss Greenhouse s writing of an obituary, the reports of the death of federalism, to paraphrase Mark Twain, are greatly exaggerated.  The decisions of the Supreme Court last term in Medellin v. Texas and Riley v. Kennedy established that controversies about federalism have not disappeared from the docket.  And in both cases, the states successfully challenged exercises of federal power.  A wealth of recent scholarship also suggests that federalism remains a hot topic.  Federalism is still alive and well.  The real question for the future is not whether we will still respect something called federalism.  We will.  The question is how will we define federalism?  Is federalism about states rights, as championed by John Calhoun in the 19th century and segregationists in the 20th century?  Is federalism about the cooperative structure of our post-New Deal federal and state governments?  Or is real federalism, as Michael Greve calls it, something altogether different? Underlying this debate is another more fundamental question, Is federalism a structural restraint of government?   Earlier this year, Erwin Chemerinsky, one of the leading liberals of the Law Academy, published a new book, Empowering Government: Federalism for the 21st Century that challenges the conventional perspective of federalism as a structural restraint of government.  Chemerinsky offers an alternative perspective.  He argues that federalism should empower, not limit, all levels of government.  Chemerinsky s perspective of federalism as empowerment is radical.  It is wrong.  It is contrary to almost everything we know and have always known about federalism and our constitution.  And although Chemerinsky presents his perspective as novel, its error is ancient.  To explain why Chemerinsky s perspective is wrong, I will address three questions:  First, what is federalism?  Second, why did Chemerinsky s criticisms of federalism fail?  Third, why is Chemerinsky s alternative perspective of federalism as empowerment a flawed parchment guarantee of liberty? Six years ago, in the aftermath of the victory by my former office in University of Alabama v. Garrett, I published an essay about the judicial enforcement of federalism as one part of the double security of freedom predicted by James Madison in The Federalist No. 51.  Madison described the structure of the Constitution this way, In a single republic, all the powers surrendered by the people is submitted to the administration of a single government, and the usurpations are guarded against by division of the government into distinct and separate departments.  In the compound republic of America, the power surrendered by the people is first divided between two distinct governments, and then the portion allotted to each, subdivided among distinct and separated departments.  Hence, a double security arises to the rights of the people.  The different governments will control each other, at the same time, that each will be controlled by itself. Madison viewed the structural restraints of federalism and the separation of powers as the double security of liberty.  Horizontally, each level of government, state, and federal checks its abuses of power.  Vertically, each government checks the other.  The federalist vision is that government is necessary but must be limited.  This vision is based on the perspective that the state exists to preserve freedom.  Nowhere is the federalist perspective and support for structural restraints more evident than in Alexander Hamilton s argument in the Federalist No.84, that a Bill of Rights was not only unnecessary in the proposed Constitution, but would even be dangerous.  Hamilton argued that a Bill of Rights would contain various exceptions to powers not granted, and on this very account, would afford a colorable pretext to claim more than were granted.  For why declare that things shall not be done which there is no power to do? The federalist argument was that the structural features of our Constitution provide the better guarantee for protecting our rights.  The federalist perspective informs our modern understanding of competitive federalism and how it protects our freedom in four ways.  First, federalism recognizes that there is no free lunch.  When a government adapts a policy to benefit someone, there is always a cost to someone else, especially when that someone else is a taxpayer.  Federalism restrains the impulses of democracy so that when the government acts, its benefits will outweigh its cost.  Second, there are opportunity costs in government.  When the federal government addresses a problem that the states are supposed to resolve, the federal government may either fail to address a problem that the states are unable to resolve or fail to remedy an abuse by the states.  Federalism, as Madison foresaw in The Federalist No.10, creates national constituencies to address national interest and leaves local constituencies to address local interest.  Third, in our federal republic, governments compete with each other.  They develop policies that allow citizens to vote with their feet by moving to whichever jurisdiction provides the greater benefits of government at lower cost.  As Professors John McGinnis and Ilya Somin have stated, the literature on interstate competition is vast and its benefit is vast.  Federalism creates the market for that well-documented competition.  Fourth, federalism is itself a counter-majoritarian right.  As the Bill of Rights protects individuals from abuses by the majority, federalism protects communities of people from abuses by a national majority.  Federalism s accommodation of diverse preferences can ease racial, ethnic, religious, and ideological conflicts by allowing each of the opposing groups to control policy in its own region. In his new book, Dean Chemerinsky criticizes federalism by taking on some of its traditional formulations.  That is, whether federalism reduces the likelihood of federal tyranny, enhances democratic rule, allows experimentation, and protects liberty.  For each proposition, Chemerinsky contends that federalism fails the test.  He describes federalism instead as rights regressive.  Chemerinsky argues to the extent that federal authority is used to advance rights and equality, such as through the Religious Freedom Restoration Act, or the Violence Against Women Act, or the Age Discrimination And Employment Act, it is perverse to justify restricting federal power on the grounds that it inherently risks tyranny.  Chemerinsky fails to defend this proposition.  He views it is self-evident.  He asserts, for example, It is impossible for me to understand why a federal law that forces states to clean up nuclear waste, the issue in New York v. United States, increases, in the slightest, the chances of a tyrannical government. Chemerinsky ignores the basic notions of competitive federalism.  He fails to acknowledge that federal legislation creating rights such as the Religious Freedom Restoration Act and the Age Discrimination and Employment Act increased costs and burdens for states and their citizens.  Federal laws lead to higher litigation and compliance costs.  They limit the flexibility of states to balance the benefits and costs of solutions to problems.  Consider a real world example of weighing the benefits and costs of a federal law.  When I was a State Attorney General, I successfully campaigned for an amendment to the state constitution that imposed the restrictions of the Religious Freedom Restoration Act on our state after those federal restrictions had been declared unconstitutional by the Supreme Court in City of Boerne v. Flores.  The people of Alabama respect the importance of religious freedom and are willing to pay higher cost for its protection.  In our state, the legitimate complaints of historic preservationists who championed strict zoning ordinances against expanding churches, for example, were considered and rejected.  So too were the concerns of prison officials who legitimately fear the cost of frivolous lawsuits by inmates. But in other states, the response has been different.  Many other states have not imposed on themselves the stronger protections for religious freedom.  Does that mean those states are rights regressive, as Chemerinsky contends, or does it mean that other states weigh the costs and benefits of those kinds of laws differently.  The question answers itself. Chemerinsky s argument that federalism is rights regressive is also myopic.  Federalism, after all, has allowed the State of California and the Commonwealth of Massachusetts to grant marriage licenses to same-sex couples.  If Congress were to enact a federal ban of same-sex marriage, would Dean Chemerinsky consider it to be rights regressive for the Supreme Court to rule that a federal ban violates the structural restraint of federalism?  Chemerinsky s criticism of the notion that federalism reduces federal tyranny also ignores -- reveals an ignorance of regulatory failure.  He assumes that a federal law that is supposed to force states to clean up nuclear waste will always work.  He offers no explanation for the response to the tyranny of a law that fails because of a structural error.  Federalism promotes accountability.  If a federal law that supposedly forces states to clean up nuclear waste does not work, then citizens are left to wonder which government is responsible for the regulatory failure.  Is it the federal government that passed the buck to the states or is it the states that enacted laws forced by the federal government? Federalism ensures that the government, when it wants to address a problem, like the cleanup of nuclear waste, has to be held accountable by the voters of that government when its law fails.  Only then can laws be amended and made to work.  Federalism also avoids the worst consequences of a national law going bad.  When the states are allowed to experiment, regulatory failures can be confined to smaller communities and contrasted with regulatory successes.  A regulatory failure on a national scale, instead of a failure confined to a state, reveals the risk of tyranny that federalism prevents. Chemerinsky belittles the notion that federalism enhances democratic rule.  He asserts that federalism has been invoked by the Supreme Court to invalidate very popular laws that clearly, were responsive to the public s desires.  He contends that the higher turnout of voters in national elections, in contrast with local elections, suggests that the federal government is the more trustworthy barometer of popular will.  This criticism fails for at least three reasons.  First, many of the federal laws that have been at issue in decisions of the Supreme Court about federalism have been copycats of state laws.  When my office successfully argued that Congress lacked the authority to subject states to liability for money damages for disability and age discrimination, we revealed in appendices to our briefs that the states have already enacted laws against provided remedies for those forms of discrimination before Congress enacted its one-size-fits-all solution.  The federal government perhaps needed to combat those forms of discrimination in the national marketplace, but it was clearly the less responsive level of government in tackling the problem of state discrimination.  My former office made the same argument against the Violence Against Women Act.  Every state in the Union provided several remedies for violence before Congress enacted one.  Second, the lower turnout of voters in local election that Chemerinsky cites can be attributed to rational ignorance and complacency.  It does not mean that the federal government better represents popular will.  Voters are less likely to flock to the polls to vote in a state or municipal election on the one hand because the choices are not as extreme.  Both local officeholders and their challengers are more in line with voter sentiments than in national elections.  Local candidates appreciate and respect the core values of the community.  A Democratic candidate in Alabama is often more conservative than even a Republican candidate in Rhode Island.  Local officials know too that their voters can vote with their feet by moving to another jurisdiction.  Ask officials of jurisdictions in the Rust Belt, with higher taxes, for example, about their competition from jurisdictions in the Sun Belt with the lower taxes. In national elections, on the other hand, voters know that the danger of government abuse is greater and the alternative candidates are more likely to propose solutions that contrast sharply.  The option of international relocation is also not nearly as attractive to American voters as interstate relocation.  There is likely a higher turnout in national elections because we cannot afford to make a grave mistake in selecting national leaders who defend our republic in a dangerous world. Chemerinsky does not acknowledge the recent scholarship about voter ignorance that challenges the conventional wisdom that individual rights are more in need of judicial protection than the structural Constitution.  McGinnis and Somin have argued that voters are more likely to be interested in restoring the original settlement on civil liberties than in reviving the original constitutional structure.  They have written, from the perspective of rational ignorance theory, judicial review may be more necessary to restrain government agents from violating the constitution s structural provisions than provisions relating to individual rights. Third, although Chemerinsky described some unconstitutional laws as very popular, what is popular somewhere is often unpopular somewhere else.  Protecting religious freedom more strictly than the first amendment requires is an easier sell in, for example, Alabama than, perhaps, Nevada.  Federalism recognizes that democratic values can legitimately vary by community.  Chemerinsky contends that the supposed attraction of federalism in allowing states to experiment is a false hope.  He asks, Does anyone really believe that states should be able to experiment with not cleaning up nuclear wastes in their midst or with allowing children to bring guns near schools or with tabling an adequate remedy for women who are victims of gender-motivated violence?   Chemerinsky thinks not, but again, there are obvious rebuttals to his argument.  If states are in the best position to resolve a problem, like the cleanup of nuclear waste, then experimentation is a great idea.  States can learn from one another what works and does not.  When I proposed laws as a State Attorney General, I often surveyed the laws of other states to learn what worked and what policy would best suit my state.  After studying the presumptive sentencing guidelines in some states and the voluntary sentencing guidelines in Virginia, I lobbied our legislature to adopt voluntary guidelines.  I know from experience that state competition and experimentation is a real and beneficial phenomenon. Federalism, too, recognizes the inevitability of diverse opinions.  Several states allow widespread ownership and possession of firearms, even though Dean Chemerinsky might find that policy impossible to understand.  If a state adopts a policy that Dean Chemerinsky fails to understand, and the policy works, other states will surely follow, no matter what the dean thinks.  After all, we know that some law school deans thought it was a great idea to discriminate against the military recruiters in their on-campus interviews until some states, and then Congress, adopted a more popular policy. Sometimes, it is best to ask whether federal power is the source of a problem instead of the answer to it.  Many of the difficulties that states face in combating problems, like violence against women, have been exacerbated by uses of federal power that Chemerinsky otherwise applauds.  State efforts to combat root causes, such as pornography and nude dancing which treat women as sex objects, have been stymied at times by decisions of the federal judiciary that enforce the Bill of Rights.  There is little evidence that states are unwilling to combat violent crime. Chemerinsky fails to appreciate the concept of opportunity cost.  When Congress behaves like a state legislature and spends resources to address problems that have already been addressed by the states, then the federal government fails to study and solve problems that the states are literally powerless to address. The Constitution created the federal government to protect national security, conduct foreign affairs, and promote economic competition because the states are not up to those tasks.  Whenever the federal government usurps a power of the states, it necessarily diverts its attention from its national responsibilities. Chemerinsky s failure to appreciate the virtues of American federalism as a structural restraint leads him instead to propose an alternative perspective of government run amuck that he calls federalism as empowerment.   His book is aptly entitled, Empowering Government.   That is exactly what he has in mind.  Chemerinsky posits the central thesis of federalism as empowerment is the genius -- modest, isn t he?  -- of having multiple levels of government.  He asserts if one level of government fails, another is there to take over responsibility.  In other words, the more government, the merrier. Chemerinsky asserts that his federalism as empowerment has four characteristics.  First, sovereign immunity should be abolished.  Forget about limiting the cost of government.  Second, Congress should have virtually unlimited authority to regulate.  Forget about the limits of enumerated powers.  Third, the jurisdiction of the federal judiciary should be expansive.  Forget about the least dangerous branch.  Fourth, states should have broad authority to supplement the regulations enacted by Congress.  Forget about enforcement of the Supremacy Clause to remove barriers of state protectionism and the abuses of compound regulation. Chemerinsky contends that we should discard sovereign immunity because it is, in his words, inconsistent with the U.S. Constitution.   He argues, Nowhere does the document mention or even imply that governments have complete immunity from suits.   He asserts sovereign immunity is inconsistent with a central maxim of American government that no one, not even the government, is above the law. Chemerinsky advances his argument with a bit of historical revisionism.  He explains that any federalist -- George Mason and Patrick Henry argued that Article III would override state sovereignty, and some federalists agree.  He then concedes that prominent federalists, notably Alexander Hamilton and James Madison, argued that the states would retain their sovereign immunity.  He then asserts this recounting of the ratification debates reveals that there was no consensus even among the Constitution supporters about whether state sovereign immunity survived Article III.  This reasoning is supposed to support Chemerinsky s argument that sovereign immunity is inconsistent with the Constitution. Chemerinsky s conclusion does not follow.  The ratification debates evidenced that there was a disagreement about whether the Constitution should expressly provide that sovereign immunity survived, but Chemerinsky s view that sovereign immunity should not survive was a minority position.  The anti-federalists, of course, criticized the proposed Constitution for its lack of an expressed guarantee of sovereign immunity.  Madison and Hamilton represented the majority view of federalists that sovereign immunity remained unaffected, and a quick ratification of the Eleventh Amendment later established that sovereign immunity, in at least some form, clearly had survived. Chemerinsky s argument that sovereign immunity is inconsistent with the maxim that no one is above the law is baseless.  The government is not a person.  An official of the government is.  When we say we have a government of laws not men, we are not suggesting anything about whether we should expose the State Treasury to unlimited liability.  The government and the American experience is not an individual but the creature of the collective, We the people.   Sovereign immunity allows the people, through their Union, to establish justice, ensure domestic tranquility, and provide for the common defense.  But the American experience has always recognized that sovereign immunity is necessary to protect some operations of government. Chemerinsky does not explain whether any form of immunity from suit should exist.  We are left to wonder whether he favors sovereign immunity for the United States.  He is also unclear about whether he favors the retention of other forms of immunity, such as prosecutorial, judicial, legislative, and qualified immunity.  If state sovereign immunity is inconsistent with the Constitution and the maxim that no person is above the law, as he contends, then it is difficult to understand how any form of immunity would make sense in his legal regime. Chemerinsky s proposal would make our government worse.  The government would have to employ more lawyers and judges, settle dubious claims, and pay all sorts of awards of damages.  Taxes would increase.  Officials in all parts of the government would be harassed by lawsuits and the government would become even less efficient. Chemerinsky argues that we should spread these costs to the taxpayers, but he offers no evidence that the taxpayers want to pick up the bill.  Chemerinsky ignores the settled fact that we the people remain entirely free to abolish or create exceptions to sovereign immunity whenever we like.  The government has always been able to consent to suit and waive its immunity.  If sovereign immunity is so contrary to fundamental notions of American government, then why do our elected representatives continue to keep it?  Again, the question answers itself. Chemerinsky s federalism as empowerment would also grant Congress the authority to regulate and tax virtually every aspect of American life.  He asserts that the structural restraints of federalism are minimal.  He would discard any judicially enforced limits of the Commerce Clause or the Taxing and Spending powers.  He would not only allow Congress broader authority under the Civil War amendments to regulate state governments, he would also allow Congress, under the guise of the Civil War amendments, to regulate private conduct.  He would cease reading the Tenth Amendment as informing our understanding of state sovereignty. Chemerinsky s perspective that federalism provides a minimal restrain of government is contrary to our Constitution.  The original understanding, as Madison explained, was that two structural restraints, federalism and the separation of powers, would provide a double security for less government and more freedom.  The Framers believed in limiting and checking, not empowering, all levels of government. Chemerinsky responds to the originalist argument with a slight of hand, by asserting that originalism cannot provide the foundation for judicial enforcement of federalism as limits.  He retreats from arguing against the historical understanding of federalism as limits and challenges instead the separate, although related, proposition that federalism merits judicial enforcement.  He does not offer any evidence that the original understanding was that Congress had virtually unlimited power to regulate non-economic activity and tax any aspect of American life.  He instead contends that the Framers did not discuss judicial review.  He totally ignores, for example, the argument of Alexander Hamilton in the Federalist No. 78 that the judiciary would have the authority to apply the Constitution as the supreme law and declare an unconstitutional law void.  He does not acknowledge the arguments of McGinnis and Somin that the federal judiciary has comparative advantage over political actors in protecting some aspects of federalism.  They argue that the judiciary cannot benefit from a federally organized cartel that insulates state officials from competition.  The judiciary instead will be more motivated than elected officials, either state or federal, to enforce neutral principles that foster second-order values like federalism. Chemerinsky also asserts that the premise that less government is better is just as unjustified as the opposite assumption that government action on balance is better than government inaction.  Memo to Dean Chemerinsky: The Berlin Wall fell almost 20 years ago.  There is ample evidence that limited government is the better assumption. Chemerinsky also proposes significantly changing the jurisdiction of the federal judiciary.  He criticizes using principles of comity to avoid friction between state and federal courts and deny the exercise of federal jurisdiction.  Chemerinsky instead proposes litigant choice as empowerment.  Specifically, individuals with constitutional claims should be able to choose whether to litigate in federal or state court.  This argument, like so many others Chemerinsky advances, overlooks a basic understanding of economics. Chemerinsky does not account for the efficiencies gained by the division of labor.  Although federal and state courts decide some common issues, they resolve, on most fronts, different kinds of cases that arise under the laws of their respective jurisdictions.  The principles of comity, that delineate the jurisdiction of federal and state courts, promote efficiency and decision-making. Chemerinsky s proposal would destroy the efficiency gains from this division of labor.  He would allow civil litigants to choose state or federal fora, whether by filing or removal, whenever the litigant, whether plaintiff or defendant, raises a constitutional issue.  He would allow criminal defendants convicted in state courts to re-litigate the nouveau constitutional issues in federal courts. Chemerinsky does not explain whether litigant empowerment should be applied only horizontally at the trial level.  Litigants could, after all, be empowered vertically in appellate review, so that an appellant, from the judgment of a federal district court, could file an appeal to a state appellate court.  Instead of litigant empowerment, it could be called judicial ping-pong. Chemerinsky s so-called empowerment of litigants would wreak havoc on both federal and state courts.  Disparate civil lawsuits would move arbitrarily between state and federal courts.  The finality of criminal convictions in state courts, where the vast majority of prosecutions occur, would be undermined.  Most of all, the courts, both federal and state, would struggle, even more than they do now, to deliver economical, swift, and predictable justice to litigants. Finally, Chemerinsky would alter our current understanding of preemption so that it would, in his words, empower states.  In his view, our current law of preemption invalidates desirable laws and strikes down state statutes that advance freedom.  He singles out for criticisms decisions of the Supreme Court regarding state laws about product liability, cigarette advertisements, doing business with Myanmar, insurance policies sold in Europe.  Chemerinsky proposes that preemption be found in only two circumstances: when a federal law expressly grants state law, and where there is an actual conflict between federal and state law.  As Michael Greve describes it, Chemerinsky s vision produces an exceedingly robust presumption against preemption. Chemerinsky s conception of advancing freedom is contrary to the traditional bias of the Constitution in favor of free trade.  The constitutional perspective suggests that a judicial presumption for or against preemption should depend on the congruence of federal regulation with the core purposes of enumerated federal powers, foremost, the protection of interstate commerce.  Chemerinsky ignores the economic interests of producing, selling, advertising goods and services across state and national lines, free from the protectionism and compound burdens of various state laws. Chemerinsky views any sort of state laws that are intended to protect consumers as advancing freedom, but he is unconcerned about the economic interest of consumers to obtain, across state lines, goods and services at low prices from producers and sellers regulated by a national standard. Chemerinsky does not argue that government is without limits, but his limits are not structural.  His answer to limiting government is that, Courts should aggressively enforce the Constitution s protection of individual and civil rights.   He contends, This is the primary protection against tyranny.   Whereas, federalism-based limits on government power offer no safeguard and have actually been rights regressive. At bottom, Chemerinsky s perspective is a familiar wolf.  It is exactly what Hamilton warned against in the Federalist No. 84 when described the Bill of Rights as potentially dangerous.  Hamilton was right about those who depend wholly on the Bill of Rights to protect freedom.  Although it obviously improved -- our Constitution was obviously improved by the addition of a Bill of Rights, our Constitution would not be nearly as protective of freedom as it is today without the structural restraints that Madison described, rightly, as our double security. Justice Scalia recently wrote that it is a mistake to think that the Bill of Rights is the defining or even the most important feature of American democracy.  He explained virtually all the countries of the world today have a Bill of Rights.  He would not feel your freedom secure in most of them.  Scalia explained they are what the Framers of our Constitution called parchment guarantees because the real constitutions of those countries, the provisions that establish the institutions of government, do not prevent the centralization of power in one man or party, thus enabling the guarantees to be ignored.  Scalia rightly declared, Structure is everything. For more than two centuries, the structure of our Constitution has made America the beacon for the free world.  It has prevented our Bill of Rights from becoming a parchment guarantee.  The structure of our Constitution, which divides sovereignty to empower states to address local problems, the federal government to address national problems, and both levels to check each other remains an enduring gift that true to its promise, secures the blessings of our liberty.  In our post-September 11th world where freedom is our hope, we need federalism, which secures freedom now more than ever.  Both federalism and the separation of powers must endure as structural limits of government.  Thank you. Michael S. Greve:  Judge Pryor has generously agreed to answer a few brief questions because we must proceed.  Please, when you ask your questions, bear in mind that his office imposes obligations and restrictions and restraints on Judge Pryor that the rest of us, many of us, do not labor under.  Please, there s a microphone here. Male Voice:  Mine is just a question as a point of information you can clear up very quickly or perhaps not.  But I don t know of any countries that have a Bill of Rights which combines the right to trial by jury with the right to bear arms, which is a tyranny.  Can you cite any? Michael S. Greve:  No, sorry.  Judge Pryor is going to answer questions about his talk, not about other countries.  Yes, sir?  Please wait for the microphone. Rob Gasaway:  Rob Gasaway of Kirkland & Ellis.  Judge Pryor, how important is practical, workable doctrines of preemption and choice of law to your success in your argument against Dean Chemerinsky?  If those doctrines aren t practical and workable across a vast, substantive group of areas, does his point take on more force against you, i.e. Pryor s federalism is good in theory but it s just not workable in practice? William Pryor:  Well, yes, I would say that s true.  And a lot of what Randy Barnett was sharing with us earlier today shows how there has been ebb and flow that ensures some practicality in federalism.  I don t think there s any doubt about that.  But it's hard to understand what the practicality is for a solution that says the government can do anything it wants.  It s okay.  Your rights will be protected because you can file lawsuits and go to court. Michael S. Greve:  Judge Pryor, thank you very, very much.  We will proceed to the next panel.  Please join me in thanking Judge Pryor for a terrific talk. [Break 04:26:48-4:28:47] Ashley Parrish:  Great, thank you all for staying for the last panel of the day here.  Someone is going to be setting up a PowerPoint on this side, but we ll proceed anyway.  My name is Ashley Parrish as Mike mentioned.  It s a pleasure to be a moderator for this last panel, which is going to focus on two particular public policy issues relating to federalism, health care and the environment.  And we ve got three very distinguished panelists today.  Their biographies are set forth in the packet and materials that you have.  And I will not belabor it by too much of an introduction, but let me say briefly a few words about each of them who will be speaking in the following order. First, Jim Blumstein will be starting off, focusing on health care issues.  He is the university professor on constitutional law and health law and policy at Vanderbilt.  He s also an adjunct professor of health law at Dartmouth.  I was also pleased to see that he has been involved in numerous constitutional litigation matters before the Supreme Court, and I m sure he will have some very interesting things to say today. He will be followed by Tom Miller, to my left.  Tom will be talking also about federalism and health law issues.  He s a resident here at AEI and also an economist and a member of the Advisory Council for the Agency for Health care Research and Quality. And then we ll finish up with a slight change towards environmental law with Jonathan Adler on my right.  He s a professor of law and the director of the Center of Business of Law and Regulation at Case Western Reserve University Law School, and he s also an expert on environmental constitutional regulatory law, also involved in a number of Supreme Court cases recently. So with that introduction, each of the panelists will talk for approximately 15 minutes.  We ll then have some questions and we should have some time for a number of questions from the audience.  Jim, if you d like to start off. James Blumstein:  Thank you.  I appreciate being asked to participate on this distinguished program and distinguished panel.  When you do health law and constitutional law and then speak before a mixed group of the Federalist Society and AEI, there s always a question of what the right format is and we had some discussion about that.  And I see Tom is putting together a slideshow. And I always think of the story of these two guys in California, a Californian and a guy from another country and they were skinny-dipping in the pool.  And when they got out of the pool, a woman walked by and the American, by reflex, grabbed his towel and put it over his middle.  His buddy from abroad grabbed his towel and put it over his head.  And when the woman left, the American was incredulous and said to his friend from abroad, What were you thinking?  Why did you put your towel over your head?   And the guy from abroad was equally incredulous.  He said, I don t know about your customs in America, but in my country, we re recognized by our face.   And so the question is whether, ultimately, the towel that I put out is in a culturally appropriate place, and we ll find that out, I guess. I want to address three questions or under three headings.  One is to talk a little bit about the values of federalism as applied to the health care arena and then specifically, take an example, which is what this handout is about, from TennCare as an illustration of one state s experimentation in this field as an example. And then secondly, I want to talk about cooperative federalism and within the context of cooperative federalism, there are different models of federalism in the health care arena and quite different consequences in terms of program design that stemmed from these two different models.  Medicaid and S-CHIP are the examples I m going to select. And then third, looking to the future, I think a very important area of federalism is the question of enforcement, the nature and extent of enforcement by individual program beneficiaries of program obligations and entitlements.  And I want to go there as the third broad topic. So let me come back to the first, the values of federalism.  Well, we ve heard a lot today about the values.  And one of them, of course, is they serve as classical laboratories for experimentation.  In health care, this is an especially important area because health care is about roughly 15 percent of the GDP.  And if we have a nationalized system or entirely a federalized system, all we need to look at is a slight error in the projection or estimation of costs or unforeseen illnesses or the development of new technologies.  Any change, any blip in such a large program can ultimately have significant financial consequences at the national level, so, even a small error, on a huge budget, can result in significant financial consequences. Also, there are virtues of demonstrations at the local level and basically, I think that this is a lower cost alternative rather than adopting something at the national level without a trial. Secondly, there are different tastes, and Judge Pryor has talked about this, there are different tastes, different priorities, different levels of wealth in different states.  And health care, just as any other area of expenditure and benefit, also benefits from recognizing these different levels of tastes and priorities and wealth. Third, and Rick Hills had talked about this earlier, that there are lower monitoring costs at the states, and that there is greater control and accountability, often, at the state level. Fourth, there is an opportunity for innovation if you have a federalist system where states are free to innovate.  This is analogous to the laboratory idea but a little different here, because ultimately, it s easier to innovate if you re innovating at a smaller scale.  The transactions costs are lower and the potential adverse consequences are lower as well. And finally, fifth, and I think in health care, this is extremely important, states cannot print money.  At the federal level, there are very few fiscal restraints of underestimation because the federal government, as we ve seen, can run big deficits.  States cannot run deficits.  Every state is constitutionally required to balance its budget.  Now there are some funny ways to do this through borrowing and so forth in the short run, but in the intermediate run and the long run, states have to balance their budget.  We found that in Tennessee just this last year, where the governor had to cut back several hundred million dollars in order to balance the budget.  It was not fun and games but he had no choice.  He committed not to raise taxes and that was the only other alternative. So when states are fiscally at risk, it makes them treat these issues as real money and constraints as real constraints because the ability to print money takes away a certain kind of fiscal discipline, as we ve seen over time.  Now I want to refer, and let me refer you to the packet and the handout, there is a graph in the materials that I would like to start off discussing.  On the vertical axis, it shows benefits and in the horizontal axis, it shows costs.  And we ve drawn the benefits line.  This is an old graph but this was basically a graphical depiction of the issue of cost containment.  Politicians love to talk about waste control.  Waste control is the zero benefit case.  The tough issue is actually cost control, where there is a tradeoff of cost and benefit.  It s the last page -- it should be the last page of the handout.  There should be a graph.  And so the way we ve drawn this graph, to show the waste control versus cost control issue, is to show the benefits line and the cost line.  The slope of the cost line and the slope of the benefits line are at 0.  Beyond Point 0, benefits still go up but the way we ve drawn the graph, it shows that costs exceed benefits and economists would say we should be at Point 0.  The traditional health care view is that we should be at Point X, where the benefits still are positive but they re less than the costs. Now the point between X and Y or the flat of the curve shows that there is zero benefits.  That s not controversial.  We should move from Y to X.  We should eliminate wasteful care.  The controversy is when we move from Point X to Point O on that graph, when we move from marginally beneficial but very expensive services to services at Point O where the benefit and the cost are equal to each other. And so this was really the guiding point behind the TennCare reforms that Tennessee implemented in 2004.  And I want to call your attention then to the other part of the handout, the TennCare definition of medical necessity.  And this got considerable opposition even at the state level and would get tremendous opposition at the federal level.  But we will get some evidence about how this works.  It s only been in operation in just less than two years and we don t really have any good date about how this is working out. But basically, the Medicaid program requires that services be provided that are medically necessary but it leaves to the states the definition of medical necessity.  This is some would say a loophole.  I would say it s an advantage of federalism.  And this definition has in, if you look at B2, is the traditional definition, that the care must be safe and effective.  It s purely a medical criterion that the medical risks are outweighed by the medical benefits, okay?  So number two is not controversial but it requires that decision makers go through that process. B3 is the critical point here.  B3 strikes some new ground.  There were some other states that have done this but not quite in the way we did it.  In order to be medically necessary, the service must be the least costly alternative course of diagnosis or treatment that is adequate for the medical condition of the enrollee.  And then going down, where there are less costly alternative courses of diagnosis or treatment, including less costly alternative settings that are adequate for the medical condition of the enrollee, more costly alternative courses of diagnosis or treatment are not medically necessary.  So this imposes an expressed economic criterion in the definition of medical necessity, the goal being to move from Point X toward Point O on the graph, to engage in cost containment and to require medical decision making include, explicitly include, a cost factor.  So that if an aspirin is adequate for dealing with medical problems that a patient has and a more expensive prescription alternative is not medically necessary and should not be paid for. Now let me move from that specific example to cooperative federalism.  We ve heard a good bit about it.  Michael Greve, I thought, gave some very interesting insights and perspectives about that this morning.  And I call this the problem of displacement of political accountability.  And I want to draw the distinction between Medicaid and S-CHIP.  The basic idea of Medicaid is that the federal government sets a floor and a ceiling and states voluntarily choose to sign up for this.  Now all states, even including Arizona now, are participants.  So the feds set the minimum criteria.  They set maximum criteria of coverage and benefits and program requirements. Beyond that, states set the plan s terms.  As long as they meet the minimum criteria and fall within the maximum criteria, the states determine the scope of benefits and coverage.  So the federal government provides matching funds, which are called Federal Financial Participation or FFP.  And as a result, what the states do is that they get a certain bump-up or multiplier for state funds.  So in Tennessee for example, if we put in one state dollar, we get $2.00, almost $2.00 back from the federal government. So one of the consequences of this cooperative federalism idea, it seems reasonable, and when I got into this field, I thought this seemed reasonable, that you would want to have the states put some skin in the game and be part of this.  If they really want to participate voluntarily in a program, they should care enough about it to put $1.00 in for every $2.00 that the feds provide.  So that seems reasonable.  They should be involved and commit to some partial funding. But the multiplier, it turns out, has a tremendously powerful fiscal incentive for states to follow a federal priority, and this is the displacement of political accountability.  First, at the state level, there is a crowd-out problem.  As the states put more money into these federal programs, there is a problem of competing for funds at the state level for things like education, public safety, economic development, and so forth. Then there s also the problem of what I call Political Moral Hazard that is to say that this is a strong incentive for the expansion of federal programs moving from the floor towards the ceiling.  And you can see why this is so politically attractive.  You tax the state at $1.00 and you get a program that s worth $3.00, or in some states, up to $5.00.  So the normal political constraints that Judge Pryor was talking about on increased spending limits are offset here because the local political establishment is somewhat anesthetized because of this multiplier effect.  And it gives plausible argumentation to the other side, which is if we don t maximize, move towards the ceiling, we re leaving all these federal dollars on the table.  For every dollar that we can spend, we can get two more dollars from the state.  And if we don t go to maximize our program benefits, we re losing all that opportunity. So basically, it puts tremendous incentive for the expenditure of state money, crowd-out state priorities, and ultimately, to move towards expenditures.  And what I like to tell the students is, is it a good deal if Bill Gates gives you his house?  Well, at some level, you d think it is.  But if he requires that you pay for the upkeep, for the gardening, the taxes, and the maintenance, even though you have a free $30 million house, you may not be able to afford the upkeep on it and it may not be such a good deal.  At some point, the state share becomes extremely expensive. So as a result, you get a tremendous constituency within the states for these broader expanded programs, what I call lock-in, political lock-in.  It s very easy to add spending.  But at some point, when you get to the point that your state share is very painful politically and economically, then you reach a plateau and you would want to cut back even, although that s very painful, where you want to just flatten out. At that point, what has happened is that the federal government has stepped in and added mandates.  They ve raised the floor so that the option of moving down that ladder or that escalator is taken away.  And so in the first stage, the state government is driving the federal budget.  At the second stage, the federal government is driving the state s budget.  Basically, the problem here is externalization of costs from states to the federal government, and then later in the program, from the federal government to the states. Also, and this was alluded to earlier today, cooperative federalism, you don t know, at the federal level, what options or what discretion the various states are going to exercise.  So you can t really project what the program cost is and it blurs the cost and makes it a lot easier to get into the game.  But once you re in the game, the federal government has no real fiscal control absent new legislation with the total programmatic costs. So the summary here is, and I m going to read this because I took some time to write this, born in the name of federalism, this type of cooperative arrangement has grown up to create a tremendous vehicle for the expansion of the scope coverage and benefits of the program. Now how is S-CHIP different?  S-CHIP provides a federal allocation to states for a state program.  But beyond a fiscally determined ceiling, states are on their own.  And so states get matching as long as they fall within a pre-allocated budget.  But if they want to move past that budget, they have to get special approval or a legislative allocation.  And we saw this play out as states were pushing the federal government for a more generous program this last year, and President Bush resisted and ultimately vetoed the Congressional approach. And so this forces a political conversation so that political accountability for program expansion is overt, rather than submerged.  And so, not all cooperative federalism programs are the same.  S-CHIP and Medicaid are different in this very important way:  Medicaid is on automatic pilot.  S-CHIP requires a politically accountable decision to increase the budget and expand program opportunities so that the federal government has an obligation, legislatively, to expand the scope of support. Now states under S-CHIP have the authority to establish non-entitlement programs or what I call obligation programs.  Most states have chosen an entitlement approach but states have more flexibility on how to structure it. Now third and finally, a future issue of federalism in this area is the issue of private enforcement and I want to turn to that briefly.  Private enforcement by beneficiaries, this is another big cost driver.  And I want to draw an important distinction here between private enforcement of individual claims of entitlement to individual services under Medicaid and claims to program or structural benefits, such as an outreach requirement under EPSDT.  I think it s important to think through that difference.  Suits by individual beneficiaries can, in fact, push resources in ways that perhaps even the federal government would not prioritize by very technical and literal readings of statutes.  And so how shall we think about the relationship between federal and state government and beneficiary?  And that s a problem or an issue that I m really wrestling with, in a project I m doing now. Contract was mentioned by Michael Greve this morning.  The Pennhurst case talks about that.  But contract is an incomplete view here and therefore, what is the proper way to think about the appropriate judicial role in enforcement?  The Gonzaga case, which was litigated in the Supreme Court by Chief Justice Roberts when he was in private practice, I think, provides a signal that this is going to become an important issue.  The Gonzaga case limited the ability of a court s inference and inferring of private rights of action to situations where the statute is in rights-creating language.  And many of these structural obligations in Medicaid are not rights-creating but are obligation-creating on the part of the states.  And I think we re going to see emerging, and in lower courts, it has begun to emerge, restraints on the ability of individual beneficiaries to bring cases to require the structural changes in the program at the state level.  And I would again draw a distinction between individual services to individual beneficiaries and these structural changes that are being sought.  So I think that s the frontier question, and a very practical way of enforcing federalism values is to limit private rights of action to enforce individual claims of entitlement and not to allow these broader structural claims to be brought in court under Medicaid.  Thank you. Thomas P. Miller:  Thank you very much, Jim.  I guess since I m an outlier on the panel, I should repeat my usual mantra, Lord Acton said, Power corrupts.  Absolute power corrupts absolutely, and PowerPoint corrupts pointlessly.  Those of you may remember echoes of this from 1971, Richard Nixon, We are all Keynesians now.   That didn t last too long.  In some ways, depending upon what you want out of the political system, we may be federalist on occasion, if not, federalist all at the same time on a steady basis.  Actually, Jim talked about some of the legal issues I recall that actually, my first case when I was allowed to practice law and since went to disuse, we sued the federal government, the Department of Health and Education and Welfare, back then, before it was HHS.  And the state of Georgia was representing the Medical Association of Georgia challenging the Medicaid program because the federal government in Georgia had the audacity to ask the people and doctors participating in the program have to sign a provider agreement.  We ve gone a long way since then in terms of what we require as part of getting some federal money match with everything else. Let me give you a little bit of an overview as to where I m heading, kind of the big broad picture in terms of thinking about federalism in this area, why, when, where, and how, kind of more of the, not theoretical, but the broad level, then kind of focusing on a couple of areas recently, because Jim did a very nice job talking particularly about Medicaid as well as the enforcement piece. What appeared to be the growing interest in the surge, if you will, non-military, just fiscally, in the states to try to expand coverage on the way to universal coverage that s kind of ebbed and flowed and tracked out a little bit over the last couple of years, and then a different area of opportunity, possibly for a competitive federalism approach, which is a state-based regulation of health insurance and how we might be able to create a more market-friendly place between traditional state regulation and full-scale federal regulation. All right, the broader case for federalism in health policy, and I always prefer competitive federalism because cooperative federalists are just wimps.  I mean, they just want to get along with everybody.  Let s get some hardheaded competition here and let the chips fall where they may.  The foundation of this is kind of the larger ailments and other areas of public policy, jurisdictional competition for the provision of public goods.  You go back to the 1950 s, Tiebout s work in this regard.  It doesn t always work exactly the way in practice, you might ve ideally designed it in theory, but the basic idea is if you can do a better job, you ll get a larger market share or otherwise, people migrate somewhere else to get what they want in terms of that variation in what s provided by the particular unit of government. Hopefully then, the political institutions also might pre-commit to some limits on what they will do and what they won t do, and you can choose in that regard, and those limits that are only applied kind of between the competing jurisdictions but kind of move upstream.  It may provide some constraints on a larger national federal government in terms of what its area for opportunity or expansion or exploitation might be.  The idea of exit rights means if you don t like kind of what they re doing, you take a hike and go somewhere else. Now in the narrow sense, it meant you had to literally leave the state.  We have at least probes and ideas to think of how you can have and affect the virtual exitability to find government services in another means, obviously, without having to change your particular residence or domicile. It s not a full market but it s kind of a market-like approach to be able to kind of have those forces come to bear on politics because it s more of one dollar, one vote, as opposed to one man, one vote, at least for the goods-providing areas of government programs, whether it s through spending side or the regulatory side.  And you have less bundling, as is often attempted particularly in the health policy world, of heterogeneous preferences, not trying to make everybody fit in to the same square peg even if they are round holes, and a bit of a sorting and matching between those different options on the table.  Again, market-like, not quite the same type of customized approach, but at least allowing that.  It also, by moving things down to a state level or even below a state level, you reduce the size and scale of political bargaining.  You don t have to kind of convince millions and millions of people to get that kind of super majority in Congress.  A little less complex, a little different kind of array of forces come to the table, but it makes it possible to get a less grand settlement, at least and a lesser level of jurisdiction.  And you both facilitate what are the kind of growing forces in our society of, mobility.  And people do move around from place to place, one kind of change over a lifetime.  So in a positive sense, this lends some opportunity to that if you re looking for more portable permanent arrangements, regardless of kind of what state you re in.  But it also kind of also focuses them.  It makes them a little sharper. The fact that people will move around and are mobile means the old geographically based regulator or administrator has less control over a captive citizenry.  But at the core of all of this, we re really talking about internalizing the consequences.  Whoever is in charge has to share both the risks and rewards of what they do in public policy and health care as opposed to trying to load it on to someone else so that states ultimately have to bear more of the cost of their own inefficiencies as well as perhaps the gains of their efficiencies. Let s think though not just about the opportunities but the limits of health policy federalism.  We have an incredibly fragmented structure in health care; both in terms of what s provided by who pays for it and also what the rules of the game are for it.  That s just an initial listing of the various kind of sectors of what is said to be kind of the health care system.  Really, how you pay for something often determines what the rules are and what unfolds.  ERISA largely controls the world of large employers, particularly in terms of making them more immune from state-based regulation.  It s kind of a deregulatory regime.  We kind of lapsed into it, perhaps, by accident but it's been a positive in general but there are always pressures at the edges.  So that s kind of the big, big boys. But then if you re kind of in the smaller group, you re state-regulated, that s McCarran-Ferguson going back to 1945, an outgrowth of some conflicts over whether antitrust would apply into state commerce and insurance.  And in the individual market, that s kind of a different group of regulation but again, mostly state-based.  The financing determines a lot of kind of health care and the tax exclusion at the federal level means if you re in that employer-sponsored group insurance world, you have one set of arrangements, where the other folks kind of operate on a different basis with less of a subsidy, as well.  Public programs also have their myriad of different kind of rules and details.  So there are a lot of different structures there, as opposed to working off the same grid. The other issues, in terms of the limits are preemption versus natural diversity.  You can go pros and cons in this to the extent that you preempt something and say kind of these are rules.  In some ways, that s attractive to individuals.  It looks like I m about to run out of power here.  But that s all right.  I can go on batteries with my voice.  If you operate in multiple jurisdictions, you d say let s have one single rule so we don t have to do different things at different places.  That s kind of the national market approach.  But the idea of natural diversity is kind of being able to have those distinctions across the different places.  And the other question about preemption is does it provide a ceiling or a floor?  Setting a minimum, which then, other states can go above, is a very different world and in effect, setting a floor than a ceiling, in which, in affect, kind of says this is the most you re going to do in that regard. The coordination of states can often be driven by the implicit or explicit thread of federal regulation.  We ve had kind of states gather together and say, Well, we can do it this way , such as through the National Association of Insurance Commissioners, when they thought there was the threat that they d lose their phony baloney regulatory jobs and it will all go to Washington so they kind of cooperated to some degree.  You can carry those threats a little too far and they become real. The other issue is kind of if you want kind of a federal regulator, is it really a fair competition of one versus 50?  Somehow, that one vote at the federal level, such as through an optional federal charge has been proposed in areas such as other areas of insurance, can have kind of a stronger voice in vote than the 50 different states.  But that s kind of the sorting out in that regard. You also have problems of kind of first move or inertia.  What might be interesting innovations in state policy cannot necessarily be captured entirely by the invading state.  And so the question is who wants to go forward and kind of have other folks copy you?  As we know, it was once said that compound interest is the most powerful force in the universe, but I ve always argued that in fact, it is inertia, and that things don t change a lot, particularly in public policy. Leveraging claims on a larger common pool, Jim had kind of alluded to this, in a different language, in terms of Medicaid.  When you ve got kind of a leverage matching rate, you want to kind of drain the swamp first before other folks kind of take the money away, but there are limits to everybody draining the pool at the same time before it s gone before you get your claims in.  We ve seen kind of split-level jurisdictional divisions between federal states.  Sometimes, the feds just don t have the capability to actually micromanage or administer what they ve set out in motion.  A most recent example is the HIPAA Legislation of 1996 where they kind of set some different federal floors but in essence, outsourced most of the administration to the states. The issue also a lot of times is, is the market really national, is it regional, or is it local?  Health care is said to be local but the question is does health care vary all that much?  In terms of what people would want their taste, health care would be provided from local markets as opposed to national markets where there s some kind of larger economies or efficiencies by kind of bundling things in larger groups.  Those are your sorting out processes.  There s no single answer. As a result, sometimes we get what I d call results-based ala carte federalism.  Federalism can be a means to an end but not a destination in itself.  People will often look upstream and say look, do I want kind of a deregulatory or a regulatory regime?  Do I want it market-friendly, more government-centric?  Okay, I ll play federalism this time.  Let me see who s in charge, what the results might be.  And we get inconsistencies in the embrace of federalism, pro or con, depending upon what it s going to deliver. So we go back a couple of years ago.  It seemed like everybody was building up their state programs for health policy.  This is the old Johnny Cash song about how he kind of built a car by smuggling parts out while he was in the manufacturing plant.  We got a lot of changes in health policy, thinking if you do a little bit here, a little bit there, state by state, before you know it, you ve got universal coverage, the craziest looking, oddest looking type of universal coverage you could imagine, but that s the idea, kind of, just doing it a piece at a time.  And since it didn t cost you a dime, because you got it from someone else, that s what the great deal on it is. We had some kind of fuel additives and catalytic converters along the way, as the political tides changed.  The support for federalism was very different, probably, in 1995 when you had a host of new Republican governors taking over the state houses.  All of a sudden, things swung back, a lot of Democrats and Democratic legislatures at the mid-decade here, and people said yes, states.  That s the ticket.  Let s get kind of bypass Bush up in the White House and we ll kind of go in that direction.  So we get swings on the political side.  There are also economic swings.  Sometimes, when you re leveraging other people s money, there s more on the table than at other times, you can kind of put that seed money at the state, the kind of the Medicaid expansion.  It comes and goes over time.  But the basic idea is more recently we had the bottoms-up road to top down.  If you think about it in Maoist terms, we were in the countryside winning that, for those who were in favor of that type of thing, and they were hoping to encircle the central city.  But now that the central city is about to be occupied, we don t need to mess around with the provinces.  Let s, kind of, deal with it where the real action is, in Washington. So what can states do?  In the Brandeisian sense, they can experiment without blowing up the entire laboratory, at least we think.  You can build a smaller consensus with lower transaction costs.  You do internalize the cost and consequences to some degree, adjust for local variation, fine tune the settings, and it s still through the government, it s not that fine tuned, and you can regulate, at least some, if not all, insurance markets because other folks have been able to escape the corral.  And you can at least try, in theory, to test the demonstrated models, reach a tipping point.  We have Medicare demonstration but they never prove anything.  In some days, you have Medicaid where it doesn t prove anything either.  But arguably, the states are on somewhat a larger scale to at least move in that direction. Okay, what can t the states do well?  Well, a lot of things.  It can t broaden the revenue base too much.  It can t borrow a lot, although New York has tried and California does it at the moment, so they can borrow some.  Let s be serious about this, off budget and on budget.  It can t really change the Internal Revenue Code, which is a big deal with regard to health care.  It can t really get around ERISA too much.  The courts are pretty consistent in this regard despite a lot of tries, so that kind of locks all -- you can t lock all the exit doors for the larger employers.  You want to get their money to kind of leverage and cross subsidy or out-subsidize.  But the states really can t kind of impose a universal coverage mandate at the state level on all businesses, although Massachusetts did it kind of piecemeal but that was so small that it didn t bother the employers yet. They really can t ignore the underlying drivers of health cost, which is both good and bad, as much as you play around with financing, as much as you play around with regulation these larger problems and kind of what they re facing in health care, the kind that can t get at with all these tools.  And certainly, you don t want to think the states can, let alone the federal government, manage some of the complex personal health options and tradeoffs involved.  And as much as the states might like to, in the long run, they can t really export their mistakes and burdens, too much, on other states. Some other challenges and limits: money.  You can leverage Medicaid to some degree, but even state budgets are limited even when they re only paying kind of $0.50 on the dollar.  At a certain point, even they run out of kind of spending money for Medicaid.  Sometimes, during economic downturns, we re kind of there at the state budget levels at the moment.  Employer taxes can get you to a certain point, but then you start running out of employers because they re somewhere else or the jobs kind of don t get created, the same way you can underpay providers but at a certain point, you re getting blood of a stone.  You don t have anybody to provide any services. Again, the challenge is really setting floors and ceilings because it s kind of that you start off with kind of a modestly good idea and then kind of say we can do more, we can do more.  The ability to resist compassion creep is difficult in this field but it gets kind of checkmated by kind of defining affordability and what people will pay for semi-voluntarily.  Enforcing mandates, to kind of fit together, you can mandate some of them and then you have to fill in all the elements around and then it gets hard to kind of reconcile the whole thing.  And at the end of that, I m just indicating if you re really pointing toward a universal coverage, we re nearing the end of kind of the idea that employer mandates, who pay or play can get you there, it s still leaves a good bit of the market out.  We have problems with individual mandates as well, but I ll get to that later on. States are placing big bets.  So they could actually pull of a change in health care costs trends through prevention.  No one will ever be sick again.  Wellness, you ll be well all the time and it we ll coordinate chronic care and somehow, it will work better.  More of a goal than a track record to kind of pull that off thus far.  An important area for states is to develop and disseminate actual information there, where the providers are, where the actual potential access to evaluate some kind of who s doing the better or worse job is.  There s this kind of state all-payer data systems, not fully modernized to kind of the degree at which they would be kind of fully actionable, but that s a potential area of positive opportunity for a number of state governments.  You can try, but they really can t continue to overcharge unwilling contributors too much as long as health insurance is a relatively voluntary market.  And you can try to treat the heterogeneous to homogeneously, but ultimately, when unlikes are treated alike, they move to other places. Some other challenges, much as the states would like to kind of tell everybody they re going to kind of charge them less than it costs and will cover more people, at the end of the day, just like the retailer goes bankrupt, you can t make up your losses on volume.  There s a mirage that somehow, all these money is being already paid to those who are uninsured.  Therefore, we re already paying for it so let s move it around.  But if you actually parse the figures, as I did recently, that actual hidden tax that is imposed is co-sharing on private payers is just too small to count. What happens to the states, as well?  At the back-end of the Medicaid leveraging line, New York got there well before you.  California got there well before you.  The other big states exploited the program.  Congress begins to kind of make micro changes, tinkering to kind of cut off that, whether it s waivers of the demonstrations of the kind of type of additional programs.  It pulls back.  Not everybody can kind of feed off of everyone else much as we might imagine we can. So let s switch over to kind of the regulatory side.  That was kind of the coverage financing expansion side.  The other area which has, at least, gotten some attention, some discussion, not enactment into law, is how we could change the state regulation of health insurance.  It doesn t like me, does it?  There are analogies in other areas, the classic one, it doesn t fit perfectly as the Delaware Corporate Chartering [phonetic] model where kind of one state gets there early, does the right job, more of a case law based approach, where kind of they ve got the franchise, they have to keep doing it, but that s kind of the model for saying you could, in effect, have one state rise to the top.  Another model is the Dual Banking Experience, where we had both federal and state regulation of banking, certainly, provided an opportunity for innovation at an earlier time, my own take on this, less so kind of in the last decade or so.  It eventually got squeezed out by kind of the override of federal deposit insurance and kind of moving toward a federal level of approach.  But it did provide kind of similar opportunities for creative federalism in the 70s and 80s.  I m thinking kind of the Marquette case, credit card banks, and other ways in which kind of where you got around usury laws. A regional compact for interstate banking was a similar model and that field kind of started the kind of aligned states.  Southeast was one, kind of a little bit in the Northeast as well.  Regional compact is an approach if you can kind of get enough states aligned together to experiment with kind of a different approach to things.  I ll skip over Risk Retention Act and surplus lines.  Those are my two examples. I would emphasize though technological end-runs as a way, really, around regulation.  As much as you can do things through laws, sometimes you simply change the product, do it through different ways.  And what seems like the fixed boxes of categories of narrow regulation, geographically based, suddenly you re regulating something that isn t there anymore because people are doing it in a different way and you didn t figure out a way to regulate it yet.  We also have in the health side efforts to bundle different groups of buyers together to bypass the State Regulatory Field Association.  Plans have been run up for more than a decade.  They finally stopped writing them up as legislative proposals, but the other way is through health insurance trusts where you somewhat can bypass state regulation by calling it something and making it look like a group of different buyers. There are wrong ways though, as always, and we know the wrong ways to do reform of a regulation.  Top-down federal preemption looks attractive in the near term.  Oh, this is great.  We won t have any price regulation.  There is no bureaucracy.  Short term, that s offered in the appeal.  The problem is you re creating a one-stop shopping mall for the lobbyists.  And in fact, over time, the friendly federal regulation you see today may not be the one you ll have in ten or 15 years because the politics moves, simply, to another locale.  It actually becomes more forceful.  But that s one of the appeals behind the idea of optional federal chartering. One problem is if you leave regulatory vacuums.  The idea is not to have "no regulation."  It s to have more effective, worthwhile regulations that people will support.  If you leave a hole, it will blow up and it ll turn out that you ll get kind of a double dose of what you were trying to minimize before.  You can aim too high, you can aim too low, and kind of exceeding where you want to have your settings on regulation.  And the federal solvency regulations, as I alluded to in the deposit insurance side for banks, if dollars are at stake, as we re now seeing with the investment banks and Fed is the first responder, regulation is not far behind as the excuse as well as the rationale for regulatory protection of what you just expanded as the public fisc [sounds like]. Some other right ways though to go about it, harnessing competitive federalism means let states compete with different brands of regulation, where people choose the regulation they want.  Now there are different ways to get there but it s not just real competition; it's the potential, as we know in the antitrust side.  You don t have to have everybody out there.  The fact that someone could challenge you for doing things, better or worse, is a powerful force as well.  You don t expect to have 51 models of regulation.  You probably don t want to expect to have one as well though.  Let s have several settings on the dial and find out where it is in between. Now you can try to do this legislatively.  You re playing with explosives and you got to be careful.  You could try to imagine a Congress that would have a narrow statutory fix, although I can t think of one right off hand.  You could try to legislate and ensure domicile rule, which says where you buy the insurance.  Where you are doesn t matter, it s where the insurer is located.  And the insurer locates at a place where they finally regulate the regulatory brand they want to offer.  That s a narrow fix to use as a rule of interpretation.  You could try to say we really mean it.  If they put these things in contracts, we ll enforce and try to give that a little bit of a safe harbor process by which it looks like something has been authorized by the feds.  You can try limited carve-outs for particular areas.  And certainly, a uniform disclosure to set a common template would be effective for making this possibly be able to succeed. But if you don t want to rely as much on federal legislation because there are pros and cons, you get other baggage once you put it on the table, you could try to be clever with laws.  Some people are skeptical of this.  You do choice of law, choice of forum, clauses.  You use the choice of forum because you don t think the judges will actually -- they won t interpret it properly.  Regulatory due deference, we ve seen progress in that in the European Union with passport system.  The problem with every state regulator is, even when they re moderately sympathetic to the states, they ll think, Well, our regulations are really good.   So they can t kind of fully disarm themselves in a unilateral free trade manner.  Regional compacts are another device, if you can get enough aligned states to go forward to it.  The uniform certificate is just kind of a modest thing to get around a desk-drawer regulation but it applies to a limited degree in the Medicare area for private plans. What do you need to safeguard?  You really have to have thorough disclosure.  If you try to pull this over the eyes of people and play fast and loose, it blows up in your face.  You got to make this a real choice, a consumer-based choice.  One primary lead regulator has to be around with home state consequences and accountability.  You can t just export bad regulation to other states.  You got to serve the dog food to your own pets within the state.  Revenue incentives for a greater market share, premium tax that -- people often misunderstand this -- f you want to get a larger market share, you should be able to capture the premium tax as opposed to let the state where the other folks wanted to flee get all that revenue.  There might be a way to share it between the two states.  Solvency arrangements can be done through guaranteed funds, a better version of the NAIC.  It doesn t have to be done federal.  Consumer protection is a tough one.  It s an elastic thing.  It can be creating regulation through other means, but in general, you probably have to keep a local geographically based element in it, at least to right a recourse if the folks in the primary state far away wouldn t answer your phone calls or do anything.  High risk pool funding came up because, at least in the McCain campaign, they re talking about this guaranteed assistance plans.  But the question is who contributes to it?  If you cover people in another state, you re going to have to pay your share of the cost to doing business in that regard and allocate it up front. All right, where do you find some supportive constituencies for this?  Not in Washington probably.  But if you were trying to imagine where you do carve-outs, if you think about individual Internet purchases, oh, this is a whole different world.  We ll see that it s anchored nowhere, in other words, probably somewhere kind of in Indiana anyway.  So why don t we treat this as outside of state regulation?  You can tie it to assistance, we had done with other things, through federal tax credits, a different model of the tax credit proposal where you d say these are the rules if you want the tax credit, multistate voluntary purchasing groups, another way to go. The appeal to the large employers, it s not there right now.  But if you have more federal regulation creeping around the edges of what kind of seems to be the sealed off ERISA world, as we had in the Patient Bill of Rights proposals in the late 90s, then suddenly, the employers say look, I want one regulator where I can at least know what the rules are when I m operating in multitudes of dozens of states.  So consolidated regulation, let me pick my state regulator would be a different way to kind of go in this regard if it was less of a regulatory advantage between being self-insured and being fully regulated per se.  Portability is the other argument that you pick your regulator and you pick your policy and you can kind of take it wherever you go.  It doesn t matter where you happen to be living at a given time. These are some limiting factors though on kind of this nirvana of the imaginary world.  State regulators have all the kinds of tools to ignore you and hold you off.  Desk drawer regulation means that in fact, there s no formal reason why you couldn t operate in the state, but that regulator just didn t get around to pulling out your application and other subtle factors.  Inertia, as I said before, slows down every good idea, probably in policy, until it breaks through.  Insurance agents would like to have barriers to entry.  They are more locally based so they don t want to see this national competition to some degree and so you can t take their money off the table.  Incumbent insurer is in the same way depending upon what they re living with.  They may be more comfortable coping with the burdens they have right now because they can manage them a little bit better than new insurers.  And of course, the disease groups will come out and say you ve taken away my mandated benefits. I ll skip through this because it s kind of just the larger philosophy in kind of understanding as to why we get the regulation we have as opposed to what we think we would want.  Fundamentally, there s a taste for regulation by the folks who kind of are the most politically active.  They d rather have a certain floor that says I don t have to shop around and we don t really care about poor people not getting the insurance that I think is necessary and you get them aligned with kind of the existing interest.  There s Clark Havighurst s work which basically says there s a reason a political economy in favor of more relation in health care because obviously, these people don t think anybody else is -- someone else is paying for it rather than them. What do we need to do though to get here?  Innovation happens anyway, just not as well.  It s the third or fourth best means but this would at least provide some channels to kind of get that arbitration adjustment a little bit more regularized.  And given the politics of getting regulatory reform in the states, reshuffling the deck of cards and throwing them up in the air and kind of seeing what you can pick up probably couldn t hurt given the status quo, so you ve got some chance for diversity in experimentation.  But there are always those tensions between oh, we can get all these other possible things but it wouldn t be as stable.  We don t know what the world would be like tomorrow, therefore, we re rather risk averse to do that.   It s important to emphasize the insurers are not there to kind of pig out and get the benefits of this.  They are pass-through agents to provide better products to the consumers who do the selection.  You want better regulation, not no regulation, a market test for the regulators as well as the companies, and then have any willing insurer for any willing purchaser.  Thank you. Ashley Parrish:  Thank you, Tom.  And now for something a little different, Jonathan. Jonathan Adler:  And now, we re going to switch over to environmental policy.  I was trying to think of what the theme was for this panel.  And if you believe most of our environmental laws are about human health, I guess that s the theme.  If you believe the ones that we actually have are about something else, then maybe the theme of this panel is various dysfunctional cooperative federalisms that we seem to have. Earlier today, we talked about how lots of things in federalism changed rather dramatically in the 20th century, and we usually talk about, maybe, changes during the progressive era or changes during the New Deal.  In the environmental context, the changes really began in the late 1960 s and there were a series of seminal events that really transformed what our views of the proper state and federal roles in environmental regulation, where one of those events that s very close to my heart, or at least close to my home, occurred on the Cuyahoga River on June 22, 1969, as I m sure you all remember or have heard about.  Debris and oil on the surface of the Cuyahoga River in downtown Cleveland caught fire and burned not all that long but spectacularly enough to attract the attention of the New York Times, Time Magazine, National Geographic, Randy Newman, and others.  And it doesn t matter.  This wasn t the first fire on the Cuyahoga River or in fact the first fire on an industrial river anywhere in the United States.  In fact, in terms of major rivers, it was really the last fire.  It had a dramatic impact and was certainly a key driver in convincing people that federal regulation was necessary. One thing that I ve tried to show in some of my work, particularly on this particular event, is that we drew all the wrong lessons from the Cuyahoga fire of 1969.  It wasn t a particularly spectacular fire.  It burned for less than 30 minutes.  All of the photographs that we see in our textbooks and on Web sites and whatever else that purport to be of this fire, the photograph that appeared in Time Magazine, for example, were in fact of a fire almost 20 years earlier, and that s because no photographer was able to show up before the fire was out.  It is essentially a fable that we have constructed about the failures of what was going on prior to 1969 prior to massive federal intervention and environmental law.  It s a fable that we tell ourselves.  It has a grain of truth in it like any good fable, but it s something that we ve been drawing the wrong lessons from.  The lessons we ve drawn from it are that well, state and local governments weren t capable of protecting the environment because look, rivers burned.  Things got so bad a river finally caught on fire.  And only a federal government could come in and do something about it.  What we tend to ignore is that, at least with regard to the level of dumping that was necessary to have enough debris and oil and flammable liquids on the surface of the river to actually have a fire of this sort or the sort that we see quite regularly, their federal government already had tools that could prohibit that sort of dumping, tools that the federal government had not used and never invoked until they were forced to, in litigation.  And state and local governments had actually made quite a bit of progress on those environmental issues that were most identifiable and most recognizable and solvable.  The particular problem of massive industrial dumping on to what were often technically classified as industrial rivers had largely been solved indeed.  It was the fact that we had solved that problem that the 1969 fire seemed so anomalous.  It was because we had forgotten that in the late 19th and early 20th century, fires of this sort, fires that were much worse, fires that didn t burn for minutes but for hours, if not, in some cases, days, used to be common; used to be things that we just recognized or expected to be the consequences of industrialization and wealth creation.  By 1969, we had a degree of collective amnesia about that sort of thing.  Why?  Because state and local, and in some cases, private efforts, had been so successful.  And we can see that in a lot of areas, in those areas where we were really aware of the nature of environmental problems and knew what we could actually do about it, by and large, the trends were positive. But that s not the lesson we learned.  And instead of trying to find ways of maybe bolstering or enhancing state and local efforts, ensuring that they occurred in ways that did not involve exportation of costs or exportation of pollution to neighboring jurisdictions, we instead had a massive nationalization of environmental law, a binge of environmental lawmaking between 1969 and 1976 that gave us the basic architecture that we live under today, the Clean Water Act, the Clean Air Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and so on.  These laws are the primary environmental legal architecture that make most of the policy choices and involve most of the priority setting for most major environmental issues.  The one exception, and it s only a partial exception, is local land use.  Most land use is still the province of state and local governments.  Some municipal solid waste issues or pure solid waste issues are still really in the province of state and local governments.  But most other major environmental issues were taken over by the federal government but they did it in an interesting way.  They didn t just say, Aha!  We re here.  We re going to regulate.  We re going to tell businesses what to do ; they, by and large, adopted a cooperative federalism model, where the EPA sets the statutes or the EPA sets various rules and priorities and the states implement.  Now this cooperative model, as Michael Greve and others have noted, corrodes accountability.  It allows the states to point the finger at the feds when there s a bad rule, it allows the feds to point the finger at the states when something is not implemented properly.  It allows both sides to avoid being really accountable for their various tradeoffs in terms of the costs and benefits of environmental policy that are particularly important.  And it also discourages innovation.  Even where environmental laws only act as a -- legally impose a floor and don t impose a ceiling, there are still tremendous incentives against innovation at the state and local level.  And we don t see the sort of continued development and improvement of environmental policy that we might otherwise see. The other thing that s interesting about this splurge of environmental lawmaking is that there s very little rationale behind where the feds got involved and where they didn t.  And when you unpack the choices that are made in the individual laws, really no coherent rationale behind where the federal actions are most intrusive or most -- where the impositions are the greatest and where the greatest amount of state and local leeway is left.  And we spun the same thing as well in terms of the implementation of those statutory regimes.  So even where we have statutes that would allow for a more coherent division of authority between the federal and state governments, you don t actually see the federal government making choices in that way.  What do I mean by that?  Well, most environmental problems are local or regional in nature.  They re not national.  There are some that are international.  There are some that we might think of as regional on a large scale.  But most of them are local.  And so for most environmental problems, the cost and benefits can be traded off against each other at the local level so long as you don t have the exportation either of the cost of pollution, so export the -- imposing air or water pollution on downstream or downwind communities or the exportation of the costs of controls.  So where you really want a federal government to be actively involved is in dealing with interstate spillovers.  The utilities in my state, Ohio, that have really high smokestacks, and as a result, get to push all their pollution or a large proportion of their pollution to New England and other places, that s something you want the federal government to deal with.  You want the federal government presumably to deal with the things that we could characterize as public goods and that s presumably the justification for everything from the creation of national parks, as opposed to leaving them to state and local governments, but as well as a preemptive federal role in scientific research and a technical research about the nature of environmental problems, what causes them, how you solve them, and so on. But that s not really what the federal environmental laws do.  Most of the federal and environmental laws have absolutely nothing to do with either.  There are a few provisions in the Clean Air Act.  There are a few provisions in the Clean Water Act, by and large, rarely invoked.  The Clean Air Act provisions have only been invoked with any success in the last several years.  And as we see from the invalidation of the Bush Administration s Clean Air Interstate Rule, these provisions are not invoked all that often successfully.  And the federal government, by its own account, has done very little of the scientific research and analysis that would be necessary to really have coherent priority setting in this area. But we have all sorts of federal requirements for things that are uncontestably local: drinking water standards, waste site cleanup standards for local waste sites, all sorts of rules where the federal government imposes its conception of the proper tradeoffs between the costs and benefits of various environmental measures, even in cases where those tradeoffs are environmentally, or even from a public health standpoint, negative for certain states.  So for example, the arsenic standard that was the subject of so much political controversy also became a subject of legal controversy because in some states, the federal arsenic standard that was initially proposed by the Clinton Administration and then kind of withdrawn and then re-imposed by the Bush Administration is actually a negative for public health for some states.  And some of those states sued, saying that they should not have to impose or follow those standards and they lost. And in some areas where we see there would be a federal rationale and, at least, thanks to the wisdom of the Supreme Court, there is undisputable federal authority, such as dealing with the concerns about climate change, under the Clean Air Act.  We see relatively little federal involvement there.  So even where we have indisputable federal authority to deal with issues that are clearly cross-border issues or trans-boundary issues, we still see the federal government not doing what it should be doing or not taking the lead and in the climate change context that has resulted in all sorts of state mischief. And in a paper I did in -- well, it s one of the papers that s in your handouts from the NYU Environmental Law Journal and a subsequent paper in the Harvard Environmental Law Review, I suggest that one of the reasons you see so much state mischief in the context of climate change, which is indisputably not a state and local issue, is because most of the areas where states would otherwise benefit from innovation and experimentation, things that are indisputably local, have largely been crowded out.  They ve either been crowded out explicitly through actual regulations or they ve been crowded out in the sense that there is enough of a federal presence that the political benefits from trying to innovate and from trying to overcome the natural inertia that exists in the political process is too small to justify additional state action.  And so what do states do?  They look for an area that s relatively clear and open.  They look for an area where they can claim all the benefit of acting because there is no real federal presence.  And all that much better, they can do so in a way where it s not clear they re going to bear the cost of their own actions and so you have lots of states being very aggressive in climate change, particularly in pursuing policies where the costs will be dispersed out of state.  So we have a very irrational division, one that s clearly inefficient, very dysfunctional, erodes accountability where state and local communities tend not to get the mix of environmental benefits and amenities that they would choose and that they would be willing to pay for.  I should just note some folks say, well, but even if these are truly local problems, we would nonetheless need federal involvement because we have a race to the bottom.  And setting aside the fact that the events that people tend to point to, like the Cuyahoga River fire, there are supposed to be evidence of such a race to the bottom.  The reality is, even when you look more systematically, so set aside the theoretical arguments that folks have made that suggest that an environmental race to the bottom is somewhat incoherent as a conceptual justification for federal environmental regulation.  If you just look empirically, all the empirical studies that have been done find no evidence whatsoever of a race to the bottom in environmental policy.  Instead, what they tend to find is the exact opposite.  That is to say, in those few areas where states are free to experiment and are free to innovate, they actually innovate positively.  There is a race to the top.  They seek to try and maximize both the environmental benefits and minimize the compliance cost simultaneously.  And they learn from each other, that is to say if a neighboring state does something particularly innovative that seems to work, there is a very high likelihood that its neighbor isn t going to reduce its regulations in efforts to attract business, but rather, it s going to replicate the successful environmental innovation in an effort to capture those benefits as well. The one study that suggests otherwise is a survey of state officials in which state officials were asked, Have you ever been concerned about regulatory competition or have you ever reduced regulatory burdens in an effort to attract business?   And a lot of them say yes.  And given that the relatively few industries that are actually going to move due to environmental regulation, the assumption is you combine that survey data with the purported minimal economic benefits of engaging in such [indiscernible] assumption as AHA [phonetic].  There must be a race.  The regulators are competing in this way and it must be sub-optimal because if most state regulators are reducing their regulatory costs and only a few of them can capture the economic benefits, then most are losing out.  That s the closest we have to empirical evidence that there s anything approaching a race to the bottom in environmental policy. But what do we do about all this?  I mean, that s the interesting question.  At one point in time, after Lopez and the like, some folks thought, well, we can go to the courts.  We ll go to the courts and we ll say all these environmental laws violate the Commerce Clause.  Well, I think that was -- even if one read Lopez very aggressively, I think that was always a losing cause, with a few exceptions, the Endangered Species Act probably being the most conspicuous one.  Even a very aggressive reading of Lopez could not invalidate the vast bulk of federal environmental law.  Nebraska tried with the Safe Drinking Water Act.  Because of the arsenic regulation, maybe you could make a case there.  But most federal environmental regulation is indisputably focused on commercial actors.  It s closely tied to economic activity and the like.  I don t think you could get very far with the Commerce Clause and other federalism doctrines, like sovereign immunity and commandeering, can pick off little pieces here and there.  There is a portion of the Emergency Planning and Community Right To Know Act that pretty clearly violates the commandeering rule in prints.  But no state has sued over it.  I doubt any state will.  And even if they did, so what?  The vast bulk of environmental regulation is still there.  Sovereign immunity, there are a few cases in which that may protect states against certain types of claims under federal laws but not much -- I don t think there s much room there either.  There are some interesting possibilities under the Spending Clause with regard to, for example, the Sanctions Regime under the Clean Air Act, where states that do not adopt sufficiently stringent state implementation plans risk losing up to all of their highway funds.  There are potential spending clause arguments one could make there under South Dakota v. Dole either focusing on the extent of the loss of highway funds and [indiscernible] challenging the connection.  One could argue, for example, that whether or not a state -- and this is an actual case from the 90 s -- whether or not a state adjusts its own standing rules in state courts to make it easy to sue factories has nothing at all to do with highways, and so therefore, losing highway funds for failing to do that doesn t meet the connection.  That might be a possibility.  And the third possibility would say that the states are on notice of the requirements for implementation plans because they are a moving target in terms of how EPA interprets the Clean Air Act requirements.  So there is maybe one place where you could get a viable federalism challenge.  And I expect we will see some states trying because some states are going to have a very difficult time meeting the current national ambient air quality standards for ozone and particulate matter.  But again, that s one -- it s a significant portion of one of the major laws, but it s not going to remake the whole of federal-state relations in environmental law.  And the same can be said about kind of soft federalism doctrines, ideas like the clear statement rules.  We ve seen this in the Clean Water Act context.  It s put the federal government on notice that they need to do a better job of defining what is a navigable water of the United States?  And I don t see any sign that the Supreme Court is going to back off of that.  But again, that s tailoring around the edges.  And if the EPA and Corps of Engineers wanted to go through the process of issuing new regulations, they could essentially evade and go around those decisions at will. So what do we do?  We have to deal with the actual statutes.  There is no way of fixing the federal-state dysfunction in environmental policy without dealing with the actual statutes.  And this is Washington.  All you folks that live here could tell me better than I could tell you that that initially sounds like a pretty bad deal.  And we ve touched two major environmental laws in the past 18 years.  And those aren t really big ones in terms of federal-state relations.  We reformed the Safe Drinking Water Act.  We reformed FIFRA and replaced portions of it with the Food Quality Protection Act.  But Clean Air Act, Clean Water Act, I mean, we haven t touched these things and we re not likely to in the near future.  Members of Congress and various interest groups are not interested in the brawls that would result.  We might get something in the climate context.  But generally, a frontal assault on the federal-state balance by going through the individual environmental statutes is not likely. So then what do we do?  Well, I think we have examples or models of what we could do.  And in fact, there is litigation that s now in the D.C. Circuit involving a provision of the Clean Air Act that might help us point the way.  The provision, in particular, I m talking about is 209B, which deals with a waiver of Section 209 of the Clean Air Act which deal with waivers for the state of California for their mobile source regulation.  Now California, what it wants to do is it wants to impose regulations on automobiles and trucks to reduce their greenhouse gas emissions.  And California is arguing that it can get a waiver from the EPA under the Clean Air Act to allow it to do this.  EPA said no.  I m one of the few people that thinks that EPA legally has a strong argument on its side because apparently, all the lawyers of the EPA who went on record or the lawyers at the EPA who went on record said otherwise.  I think that out of the cases in the D.C. Circuit, the EPA stands a chance.  This might be one of the few Clean Air Act cases that the Bush Administration actually wins. But the issue, the importance of Section 209 is not the specifics.  Because if we re talking about where we want states to be allowed to innovate, climate change is the last thing we d put on our list.  And regulation of automobiles, in the context of climate change, would be at the bottom of the things under climate change.  So what s important is not the specifics, but what s important here is the mechanism.  We have a mechanism in the Clean Air Act that says we should allow states to experiment and we should create a default presumption that states are allowed to experiment unless the EPA can make certain demonstrations to say that they shouldn t be allowed to.  That basic structure of a waiver that states are entitled to, presuming that they go through an open process and explain what it is they want to do, is the sort of process that we could adopt across the board without having to tear open all the various environmental statutes.  And that would create an opportunity for states to come forward and say these are the portions of environmental law that really make the least sense for us.  Here is why we believe we should be allowed to do something different and what we would do.  For those of you that have spent a lot of time with environmental law, in many respects, what I m talking about is something like Project XL, only something that s actually legal, since the Project XL program that the Clinton Administration tried was most definitely not legal.  In fact, there was a motto inside the department said that if it s not illegal, it s not XL.  But the idea was to allow some experimentation and to allow people to try things that are different from what s actually on the books.  And that is something that we ve let California try, and again, an area that would not -- shouldn t be at the top of our list in terms of where we can get the most benefits from state and local experimentation.  But it s the sort of thing that I think we should spend more time on.  And if all the folks that are clamoring for allowing California to have this waiver for its greenhouse gas emissions program are really serious about state and local experimentation, what they really should be asking for is an across the board waiver policy that allows states, whether it s under the Safe Drinking Water Act, the other provisions of the Clean Air Act, Clean Water Act, or what have you, to come forth and say here is how we can do it better.  Here is how we can meet the needs and demands of our citizens more effectively than what s done at present.  Allow us to do so, or at the very least, publicly, in a notice and comment type process, make the case that we shouldn t be allowed to have it and we can have that out either in the political arena or in court.  We saw this sort of dynamic in the welfare context.  It s what eventually led to federal welfare reform.  I think if we unleash something similar in the environmental context, we could see similar results.  Thank you. Ashley Parrish:  Thank you, Jonathan.  Well, before opening it up for other questions, I have a couple that I d like to pose.  And maybe I could start, Jonathan, with what you just finished up with because it actually ties in the question that I have for Tom and Jim as well.  So I get your idea about 209 and the waiver.  But let s take it back to what the judge was talking about at lunch, which is that one of the real problems here that we re worried about are issues of accountability and so forth.  And then let s challenge two of your main assumptions: one is that you think that the federal government shouldn t be involved in a large portion of these things.  So you re sort of taking away the interest in creating some form of safety net, hold aside the race to the bottom but just that there should be a federal safety net.  And then you also minimized state concerns with things like climate change, where if you know that if -- obviously, Lisa Heinzerling for instance, I would tell you that there are very important local concerns here.  And the question for you is not to debate those but to sort of simply say why would you ever expect a state to actually make a rational judgment as to when a waiver would actually be appropriate and why wouldn t it just fall under the same problems that you have right now, which is that you d only expect states to ask for waivers when it doesn t make sense from a competitive federal perspective? Jonathan Adler:  Well, it has two things.  One is -- one of the benefits of adopting a waiver-type system is you don t lose all that much.  That is to say if states don t believe that they can produce better environmental results at lower cost for their citizens, they won t submit waiver requests and nothing changes.  But the idea is that if you create that opportunity, then you re saying to states and you re saying to the state environmental or heads of various state EPA s.  If you can come up with something and are willing to openly make the case for it or would choose part of what enhances accountability, we are going to give you that opportunity.  And what we ve seen is that where states, those few pockets, where states are allowed to innovate and are allowed to experiment, they tend to do so.  And one area that I spend a lot of time looking on in the area of wetlands, states were well ahead of the federal government in regulating wetlands before the Corps of Engineers and EPA got into the act. And since the federal government has gotten into the act, all the actual innovation, all the real trying to do it better, all the real progress and whether it s talking about mitigation banking or buffer zones are actually considering the ecological function that wetlands provide when doing permitting.  The only places where that s actually occurring as opposed to kind of sort of being talking about is really at the state level. So where states are allowed to experiment, the actual evidence on the ground is that they will do so.  I think the other benefit of a waiver process is that if a state wants permission to do something that basically allows them to capture some benefit but export the costs on others that, to me, would be the grounds for EPA to say no.  Or the EPA could say no, you can t change your air pollution laws in a way so that all your air pollution now suddenly goes to your neighbor.  That would seem to be a pretty easy case.  But I think the empirical evidence is that states, if given the chance to act rationally and kind of in a more competitive environment, will act at least more rationally than they do now.  I mean, now you have California simply saying we re going to adopt these policies, impose lots of the cost of our policies on the rest of the country even though we can t capture really anything but the symbolic benefits of our policies because no matter what California does, it doesn t help the polar bears or the icecaps or any of that.  So even if I accept Lisa s premise, Lisa Heinzerling s premise or the premise that other folks make that yes, California could lose a lot from climate change, they can t do anything about it.  And so what you want to get states to act rationally is a match between the nature of the problem they re addressing and the benefits from acting and the costs of acting.  And you don t get any kind of jurisdictional match when you have a state, by itself, trying to deal with a global problem or when you have the federal government, because a couple of local areas have a particular problem, imposing the solution to that problem on everybody.  And that s one of the underlying dysfunctions that a waiver mechanism would at least create the possibility of addressing. Ashley Parrish:  So I got some thoughts about that but let me move back to health care on the same sort of line of questioning, which is that both of you seem to be of the mind that state experimentation is good and I can buy into that.  But Tom, I was actually struck by what you said because I thought your assumption or description of federalism was very much inconsistent with how I would see it.  You talked about results-based federalism and then you talked about your understanding of preemption as really just being sort of the federal government coming in and taking it out.  But if I was to take away anything from the judge s talk this morning, it would be that the word results-based federalism doesn t really make sense because if you really have federalism, it can t be so much results-based, at least in the way that you were describing it. Now you gave a menu of options of where the federal government could come in.  And Jim, with your talk, I really thought you focused in some part in the way in how the federal government s role sort of works in either bad or good ways in terms of a funding mechanism.  But I guess the question I pose for both of you is if we take the competitive federalism not in a results-based way but really in the sense that the judge was talking about at lunch, what is the role for the federal government, in terms of using preemption doctrines and other ways of the federal government being involved, to enhance the competition?  And how do you see that playing out with sort of both of your models of looking at it? Thomas P. Miller:  Just to start briefly, I was describing, rather than recommending, and we have -- the federalism we have as opposed to that which maybe designed as kind of the best model.  Many other things wouldn t have been in place if in fact the federalism that many people here would recommend is actually in place.  So what I m saying is people hear different things and often interpret them with kind of the playing field and the table.  Sometimes it s shirts versus skins.  Which side are you on and who are you getting?  I mean, that s what happens in the political world, and people may either adopt the rhetoric of federalism inappropriately or use it for the right reasons.  So I wasn t trying to give you the ideal dose and prescription as to kind of what might be a truly federalist structure.  But what I m saying is that these tools are often kind of used both for good or for bad and adopted conveniently as well as in the purest sense.  And you have to kind of understand that real world.  Part of it is also kind of whether you re playing offense or defense.  If you re just trying to hold on to what is, you kind of use an array of tools and arguments to kind of preserve a structure that you happen to like and you don t want it to change. Now in its purest sense, a federalist world will be quite dynamic, quite innovative, and destabilizing to what are some settled battles of the past that people don t want to have rolled back.  And so what happens is if it happens to be on the federal level that these changes are being proposed and you re trying to defend against them, well, you ll do it at the state level.  Or if you can t get something and wash it, then you ll try to run it out of there.  I m just trying to describe what is a little bit of a real world veneer.  I m not trying to be deconstructionist on you, but we often talk kind of in the abstract as opposed to how this actually plays out.  To health care markets, health policy is a tougher area because you don t even have market-based people, let alone federalist people in that field as a general rule if you re looking at the balance of forces. James Blumstein:  Yes, I would -- there s no silver bullet here, but I think the objective should be to establish lines of political accountability so that the costs are internalized and the benefits are internalized.  And so I would move more towards an S-CHIP model for the cooperative federalism program where there are budgetary caps set, not an entitlement concept.  And basically, a federal matching program, up to a certain amount based on appropriate formula.  And then if the states want to achieve cost savings within that framework, I think that they should be able to recapture and reallocate those savings.  And so there is an incentive for innovation at the local level but also an incentive for the states to be able to reallocate and recapture that. Ashley Parrish:  That makes a lot of sense.  And Tom, I understand your point, but let me ask you a follow-up on that because it seems to me that one of the questions there is can you ever have a federal overlay, not just where they re providing funding system but where they re mandating something like universal health care in a way that would actually allow that to actually happen in a meaningful way?  Or do you think that sort of the competitive federalism, in terms of the laboratories of experimentation, are inconsistent with that concept so unless the federal government is playing just a sort of a funding or -- how do you see that? James Blumstein:  Well, I think that s a great question.  And I think here, political tastes are going to matter a lot.  Program advocates are going to worry, as they do now, that states will cheat.  That if you define program benefits and say as long as you provide the various program benefits, you can decide how to allocate the resources, you can innovate you can recapture, you can reallocate.  But if you decide to move down my graph, from Point X to Point O, there are going to be some advocates who want to stay at Point X.  And that s where we have the various mandates.  It s that their interest groups are advocates who think very strongly that you need a very robust mental health policy or program.  And if the states are going to limit substance abuse treatment or some various other kinds of hard to contain cost of programs like mental health benefits, that that s going to be cheating and that s going to be inappropriate.  And so that s your political taste.  If you re really not willing to let up on the leverage of control of the substance, it s going to be hard to allow the states to innovate in that way. And so I think the question becomes is this comprehensive?  Is it a minimum structure?  Is it -- we use the term in the definition -- adequate.  Boy that got a lot of opposition.  But adequate suggests that it's not the best possible but it meets social norms.  And I think that, to me, that s the right way to think about it, that the federal government should be mandating an adequate standard of care and funding it.  And if states want to go beyond that, that s a choice that they can make.  But I know that even in Tennessee, there are tremendous headwinds to that concept.  It is in the law though but their governor took a lot of heat for that and he s very courageous, I think, for sticking to it and getting that implemented in law. Thomas P. Miller:  When we talk about federalism, we sometimes think about the structure and the means and the process, devoid of the actual living.  But actually, if you re looking where most of the regional support for federalism is, it was assumed and presumed that it had an alliance with the concept of limited government.  And when you believe in that, then you say, oh, yes, I m pro-federalist.  But if that federalism delivers a different non-limited government approach because of the modern society and a lot of what used to be the legal bulwarks as well as the political presumptions that went with it, you re in a different world in terms of many different tools at the table.  The alliance you need to have, particularly in health policy, is to think of federalism as being aligned with individuals and consumers exercising their choices.  There s nothing wonderful about a government anywhere, whether it s a state government or a federal government.  It just maybe scale and more powers and tools, but it isn t kind of -- by analogy, I m thinking kind of the pro-Sagebrush Rebellion folks in the early 80s.  They just wanted their state to own the land, as opposed to the feds, as opposed to summing up a private property right in it.  So you can get kind of a little bit displaced by forgetting what it might be about from at least those of us who have a broader construct of federalism in terms of what it means, rather than just an abstraction of where the powers are aligned. James Blumstein:  But let me just add a footnote to that point.  Building on something that Jonathan said, which I think has a lot of wisdom, is that when he said the Clean Water Act, the Clean Air Act, they re not going to be changed, there s just too much inertia built in there, I think that certainly is true in many areas.  And I think that the frustration that many have had with the Rehnquist Court s attempt at having these grand designs of federalism is that we ve been there in a pre-New Deal period and there were lots of problems with those doctrines in the early part of the 20th century.  And they were discarded because they were not very persuasive.  They were not really easily administered.  And when you look at the demise of the Usury case, Printz and New York, they set some parameters.  That s where we re going to go, I think, is that there is going to be nibbling around at the edges.  There will be rules on standing.  There will be rules on just disability.  There will be rules on tinkering, if you will, that will have effect.  And that s where my focus is now, on enforceability, on private enforcement.  And a lot of these things, if you can t enforce them privately, then as a practical matter, that s up to federal enforcement.  And the federal vehicle of enforcement is an all or nothing proposition, which is basically a nuclear option.  And it s hard to imagine any administration, Republican or Democrat, telling Tennessee or any state if you don t come into compliance, we re going to cut you off on your Medicaid.  That s not going to happen.  New York has been owing over a billion dollars because of their alleged violation of some --this federal law on matching moneys.  No one has been called on that and no one is going to bankrupt the state to pay back the federal money.  It s the same principle of Freddie Mac and whatever.  Bill Zeckhauser was famous for saying, If I owed the bank a million dollars, that s my problem.  If I owed the bank $500 million, that s his problem.   And I think that s really true.  The feds aren t going to blow up the states or blow up the programs.  I mean, there may be some tinkering.  And that s why I would focus upon these incremental issues like law enforcement, private enforceability and so forth.  I think those are important. Ashley Parrish:  I have some questions about that, but instead of me keep asking, why don t I throw it open to the floor?  There are mics, and if you d like to ask a question, if you could just state your name and also your affiliation, that would be appreciated.  Anyone have any questions at all? Elaine Middleman:  Hi, my name is Elaine Middleman and before I went to law school, I worked at Ford Motor Company.  And actually, the reason I -- among a hundred other reasons I went to law school is because I was supposed to be -- I was in the capital budgeting area and we re supposed to give a cost estimate for some regulation that Ford was supposed to comply with about pollutants in the river, I think the Rouge River or something. Male Voice:  [inaudible] Elaine Middleman:  Yes.  Anyway, the number was so vast in terms of its uncertainty that I said to myself I m going to have to be a lawyer to understand this.  And that s why I went to law school.  So that was probably pretty stupid of me.  But anyway, talking about the regulation of fuel economy and whatever else the auto industry is now faced with or they have been for -- I don t know when the first regulation was.  But given the stature at this time of the so-called domestic auto industry, I just wonder how you think that s -- how those two collide or interact or whatever? Jonathan Adler:  I mean, historically, it s had a big impact.  And I m assuming that it has, given that I think [inaudible] automakers self-insure and health care.  I mean, I assume it has impacts there as well.  Historically, it s had a huge impact.  I mean, CAFE standards, as they were originally developed, were designed to serve two purposes: one, improve fuel economy and two, give the American automakers a competitive advantage over foreign automakers.  I don t think you see as much of that in environmental regulation now, in part, because so many of what we would characterize as foreign automakers, their products that are sold here are made here. But one thing you se that s really interesting with the auto industry is that there are some parts, the things that affect the auto industry where there s a very strong case for federal action and perhaps even federal preemption like fuel economy, like vehicle emission standards, which people tend to forget the automakers actually asked for in the 1960 s because they wanted to prevent states from regulating more.  California had adopted the first vehicle emission standards in the country.  The reason the waiver provision exists in the Clean Air Act is California was essentially grandfathered in, in return for preempting all the other states from adopting their own standards. But a lot of the other normal regulations that automakers, like any other industrial entities face in designing the facilities and the like, there is really no rationale for federal control, and especially since all those decisions have to go through a local regulatory process anyway.  There is no place in the country where you can, for example, build an industrial plant without going through a very extensive state and local citing process that s going to look at a lot of the same things and do so with an actual eye towards what the actual impact of that facility, where it is, is going to be.  And the federal requirement on top of that don t add all that much.  And the things that the federal government could add, perhaps technical know-how, modeling, the things that would help folks at the state and local level have a better understanding of the actual impacts of a particular decision, the federal government really isn t doing very much of and isn t investing much in.  So where the federal government could actually be enhancing that, it s not.  And instead, it imposes these across the board standards that tend to be one size fits nobody. Robert Helms:  Hi, Bob Helms with AEI.  I guess this is a question for Jim Blumstein.  You know, in economic history, there is this story about England called The Tragedy of the Commons, a process by which we establish private property rights and the implications of not having property rights.  If I apply that to your description of the competition among the states to get federal money, the federal budget is the commons.  I know you re aware -- you didn t -- you talked about the basic incentives but there is a long list of actual strategies that states use, provider taxes, intergovernmental transfers, innovative accounting, anything you can do to get the federal claim in there means you get more money back from the federal government.  And so I guess that situation, I m trying to -- the title of this conference is The Future of Federalism.  I guess I want to ask you, where do you see this going in terms of the future of Medicaid?  You mentioned the possibility of a kind of S-CHIP approach, where there s a fixed allocation.  But if a state is not at the maximum, they are still under the same basic incentives that you have with the matching rates for Medicaid.  In other words, they have an incentive to get up to the cap. And then you ve got the expectation on the part of the state with this S-CHIP program that if there are unused funds from all the states, they might get it reallocated.  And furthermore, if everybody runs out of money, then you go back under the stimulus package or something and get the Congress to give you a little more.  So the practical -- I don t know that states really view that limit, the way you were describing it.  So where do you see this going? James Blumstein:  You know, Bob, of course you re right.  When Medicaid was originally enacted in 1965, New York and California really were very savvy about this.  It goes all the way back and they immediately expanded their benefits and wound up, the two states together, really drawing down an enormous percentage of the total amount and found that the state -- Male Voice:  [inaudible] New York gets 13 percent of the federal money. James Blumstein:  Yes.  And so ultimately, there is tremendous opportunity for taking funds out of this common pool.  The problem that I was identifying is that that common pool is not set in advance.  And so the federal government is in a position where it has to fund this extra, whereas in S-CHIP, it doesn t.  Now is S-CHIP perfect?  No.  I mean, if I had my preference, and I think that that preference is not going to become reality, but I think the only way to stop this gaming that you re describing is to have fixed allocations, not a floor and not a ceiling, but a fixed allocation based around a formula and so the states have a fixed amount.  I mean, you can use the words block grant or something else to talk about that, but that s political -- I m sorry? James Blumstein:  But that s political poison in Washington and in many circles.  But I think that that, from the point of view of lining up political accountability, I think that s really the way to approach this.  But then you lose the ability to manage and to create incentives or to nudge, in the common term now, the state priorities.  And I think that that s really a political conflict, should the federal money be used to really shape and establish these kinds of political priorities at the state level.  And advocates for the programs at the federal level will say of course, we re trying to encourage states to increase their Medicaid.  And if that means more taxes at the state level or less funding of education or something like that, I think the advocates, the forthright ones, would say yes, that s our agenda.  It s our money at the federal level and we re trying to bribe states or create incentives for states to spend money in accordance with our priorities.  That s what the money is designed to do. And so, I think Michael Greve said earlier today that there was very little in the way of restriction on federal spending.  Certainly, the Supreme Court in the Dole case, as Jonathan mentioned, has very permissive standards.  And the Court seems to see that that s not coercive.  That s a choice on the states.  It's not coercive within that framework.  I ve always been a little surprised that that s where Court comes out on that.  But that s the rule.  And I just think that if you move away from block grants, you re going to always have these problems.  I think S-CHIP is a better approach than Medicaid in that regard.  It s kind of a compromise, if you will.  But I think the best to way to do this is to establish not necessarily a broad block grant but a Medicaid block grant or some health care block grant that would allow, within this broad guideline, states to make their own choices and to make the appropriate tradeoffs and accommodations. Thomas P. Miller:  If you look at the history of S-CHIP, I think the advocates of S-CHIP would say we ve got a good start but we ve got more to go.  The concept of a capped spending appropriation was merely a temporary placeholder in order to get the law on the books and get the momentum underway.  And if you look at the support in Congress, it was certainly large enough but for a presidential veto, which probably won t be around next year.  So I think these are -- you always have to think about kind of -- this is the Henry Waxman genius, as you know, and kind of the areas of Medicaid.  Start the program.  It s just the beginning.  It s never the end.  And you just try to go in until all the money is gone.  I mean all the money is gone.  Until then, you can at least get a little bit more out of it. James Blumstein:  Right.  It s the classic camels under the tent, right?  And I think that there is a lot of truth to that.  And I think that S-CHIP came from an alliance with Senator Kennedy and Senator Hatch, if I remember the politics.  And Hatch insisted upon this cap as part of the deal to go along with it.  So I don t disagree that that really was with the intent for some but not for all and there is not a single legislative history.  I mean, I think legislative history is some win it.  It s a compromise.  There are some on one side and one on another.  And so I think S-CHIP has a better approach from the point of view of political accountability than Medicaid does and fiscal responsibility.  But I think a block grant, I mean, I ll use those terms even though that s poison in some circles, has more appeal.  But if you re a true believer in the program and go through the process of advocating at the federal level, that s a problem because you are not in fact creating the kinds of incentives.  You re in fact restoring more authority to the states.  And now it may be that with the governorships and the states more evenly divided than they once were, a good number of Democrats are in control.  Bill Clinton, when he was governor of Arkansas, certainly saw this devolution of authority to the states as a great opportunity.  I mean, I remember he spoke at Vanderbilt a number of times, several times when he was a governor of Arkansas, and he said this is the greatest thing.  This is providing tremendous authority, tremendous opportunity to really experiment, to make inroads, and to policy at the states more fun to be a member of the state legislature and state bureaucracy and so forth. So if that attitude does develop if there are activist governors in both parties, Democrats and Republicans, I think that maybe that the opportunities seen at the state level will pick up but I m not holding my breath. Jonathan Adler:  There is an interesting parallel in terms of environmental policy.  Even though President Bush was a governor, there was more serious discussion of giving states greater flexibility and devolving authority to the states under the Clinton Administration than under the Bush Administration and more discussion of it the last time there was a Democratic Congress before the current Democratic Congress, the Project XL and the National Environmental Performance Partnership System, and those were things that the Clinton Administration tried to do.  The legislation that was introduced to try and authorize Project XL was introduced by Senator Lieberman when he was still a Democrat.  And a lot of the governors that were asking for more flexibility were Democratic governors.  One of the big battles over state flexibility in environmental policy was over audit privilege, which was basically an innovation that a lot of states tried to do in terms of enforcement of federal environmental laws and Texas environmental privilege law, which was one of the first was signed into the law by Ann Richards.  Colorado environmental law first was signed into law by -- I forgot who the Democratic governor was -- but I mean -- Male Voice:  Romer? James Adler:  I think it was Romer, yes.  So it was not a left to right thing.  It was governors realized they are spending a lot of money, they are imposing a lot of burdens on business, and they re not getting much in the way of tangible environmental benefits.  And they happened to have a sympathetic White House and a somewhat sympathetic Congress and were not seen as threatening perhaps, as Republican governors might have been, asking for the same things because the assumption wasn t that they were there to somehow reduce regulatory processes.  So I mean, there is -- it would not surprise me if for example either a Democratic Congress or a Democratic President were responsible for greater headway in decentralizing some environmental decision making. James Blumstein:  Yes, let me just follow on, in further response to Bob Helms, I think that as the state match becomes larger in absolute dollar terms and really threatens other significant state priorities.  At least in our Tennessee experience, the pushback comes at that point when priorities -- when Governor Bredesen came in -- he is a Democrat and he followed a Republican, Governor Sundquist -- and Bredesen basically had an agenda.  I mean, he said they ve hired McKenzie to do a study and that really was the genesis of TennCare reform that showed over 90 percent of new available state revenue within his eight years protected, he was going to be reelected, and within his eight years, over 90 percent of the new disposable revenue was going to go to Medicaid.  He said that gives me less than ten percent of discretionary money to do my priorities. And so he set an aspirational limit that 26 percent of state revenues would go to Medicaid and he wanted to bring down the number to 28 percent or 26 percent -- I think 26 or 28 -- but he had a fixed number.  And since the projections were that over 90 percent of new money was going to be required to fund Medicaid at its then current rate, he said he had to bring it down and he saved over a billion.  I don t remember what the numbers are but it s big, big money, over a billion dollars.  And some of it was very painful.  And that part of it, we haven t talked about consent decrees and how it s done and the limits on the ability to manage. But the original idea was not to cut anyone off.  It was to cut back on benefits, on things like prescriptions and magnitude of prescriptions.  Somehow, Tennessee spends more per capita, has more prescription per capita than any country.  We re not number one in many things but that s the one thing we re number one in.  And so the idea was to kind of cut back through some management on that.  But the government was blocked by a consent decree from certain restrictions that would not have put people off.  And the one area of legal flexibility that he had was to reduce the enrolment of the discretionary TennCare population, which is one of the ways he went.  So I mean, it was a multiple approach but it was tilted in that direction because of constraints by the consent decrees. Robert Helms:  I ll just remind you that I went through this in my talk at Vanderbilt.  But you ve described the incentives when you ve got a federal match to expand the program.  But if a state has to cut back, like Tennessee was doing, and you have a federal match, it works in opposite direction.  In other words, the state of Mississippi with the highest matching rate, if it wants to save a million dollars in state funds, it has to cut the total program by over $4 million, and the same with Tennessee.  So it s a ratchet effect. James Blumstein:  Exactly.  It s politically relatively painless to go up the escalator but coming down is excruciatingly painful for all the reasons you ve said.  In Tennessee, to save one state dollar, you lose three program dollars.  And again, that s the built-in ratchet effect that is part of the problem, it creates constituencies so you now have the doctors and the nurses and the hospitals all supporting very robust levels of Medicaid with the states in control of payment mechanisms and so forth.  And as you know, the feds, I think it was in 1991, put in these federal political process restraints so that you didn t have the provider donations and provider taxes that were supposed to insulate the states from the pain.  And so that the dollar that the state raised was actually funny as our governor, Governor Bredesen said, funny money and a stop was theoretically put to that.  I have not seen any studies about how effective it is, but intuitively, people think that it has had some effect.  Male Voice:  [inaudible] Ashley Parrish:  Well, seeing that it s just past 3:15 here and I thought I heard somewhere along the line there that federalism is a non-partisan positive, so let s end on that positive note.  What I would like to do is I ve also been given authority to actually adjourn the entire conference today, so I wanted to thank everybody, and in particular, thank the co-sponsors, AEI, the Federalist Society, and the Chapman School of Law.  And then of course, if you can join me in thanking the three panelists for what I think was a very productive conversation. 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