In an Era of Big Government, Classical Liberals Should Look to the States

In a political era driven by federal overreach from both sides of the aisle, classical liberals are demoralized by the dearth of policies worthy of their support, and dubious of the possibilities of minimizing overregulation. Cognizant of the economics of unintended consequences and skeptical of those who proclaim to have overcome the knowledge problem, we find ourselves outnumbered in the current environment of public policy debates.

Drawing from a history of policy successes, classical liberals might look to the states to advance public policy innovations that promote a freedom enhancing, limited government agenda.

Progressives and conservatives seem to be finding common ground in their support for expanded welfare programs, hyperactive antitrust policy, industrial planning, and tariffs on trade.

For classical liberals who believe in the principles of individual liberty and limited government, it can often seem despairing to observe as policymakers on both sides in Washington, DC embrace policies of paternalism and centralization.

But all is not lost. Many of the greatest public policy innovations of the past four decades originated not from Congress, but from state-level policy changes. Policymakers in DC frequently adopt effective freedom enhancing ideas enacted at the state level. We shouldn’t rest our laurels on Federal policymakers to implement positive social change. Advocates of limited government and individual liberty should look to the states to advance social change.

In the late 1980’s, Wisconsin Governor Tommy Thompson pioneered the Wisconsin Works Welfare Reform. Wisconsin restructured a heavily centralized welfare system with a decentralized welfare-to-work program that tightened eligibility requirements and removed many of the incentives for recipients to remain idle.

Upon seeing the significant decline in welfare caseloads in the decade following the reforms, other states followed suit with similarly successful outcomes. The welfare-to-work approach was so successful that the Clinton administration signed into law the Personal Responsibility and Work Opportunity Act in 1996, cementing the policy change at the Federal level.

In a similar vein, the school choice movement didn’t originate in some bureaucrats’ office in Washington, DC. The nation’s first charter school opened its doors after the Minnesota state legislature enacted a charter school law in 1991. The change promoted innovative education programs independent of the state school system and gave parents greater autonomy over the management and operation of schools.

Now, 30 years after Minnesota enacted these changes, 44 states have charter school laws, and over 3.4 million children are currently being educated in one of roughly 7,700 charter schools nationwide.

Enacting state legislation is not the only way that states drive nationwide public policy changes. In 2012, Colorado successfully passed a ballot measure decriminalizing possession and cultivation of marijuana, and legalizing personal and commercial use.

A decade later, 19 states have legalized recreational marijuana, while 19 additional states have decriminalized or allow marijuana use for medical purposes. This nationwide shift in the legal approach to marijuana has helped alleviate many of the problems associated with overcriminalization.

A more recent public policy innovation happening at the state level comes in the form of regulatory sandboxes. In 2018, Arizona became the first state to enact a regulatory fintech sandbox.

Within a regulatory sandbox, established companies, startups, and entrepreneurs are free to launch new products to consumers on a limited scale to test the software before it is available to the wider market. Participating companies are free to do so without incurring regulatory costs and compliance burdens.

Since Arizona launched its fintech regulatory sandbox, at least 9 other states have implemented similar initiatives in their states for industries ranging from blockchain to insurance technology to legal services. The successes of regulatory sandboxes in stimulating growth and expediting innovation has led to growing nationwide support for such initiatives.

States are also leading the way in reducing the tax burden on individuals and businesses. This year alone, over 20 states cut individual or corporate taxes to attract investment and boost growth. Not only that, but data from the Internal Revenue Service shows that Americans are moving in their droves from high tax states to low tax states, with 20 of the 25 lowest tax states enjoying inward migration in 2020.

While these state-level policy successes offer classical liberals some respite from the doom-and-gloom state of affairs in Federal public policy, there is always more to be done to advance the principles of limited government and individual liberty.

Classical liberals should avoid getting caught up in the partisan system, looking instead to the states where real progress is being made, and who need innovators to solve real problems. We must broaden our minds to the ways liberty might be advanced at the local level.

Occupational licensing restrictions continue to hold back millions of workers who require government permission to practice a particular occupation. Certificate-of-need laws continue to prevent health care providers from opening or expanding a facility, which reduces the supply of health care resources, raises prices, and diminishes the quality of health care provided at hospitals. Many states and localities continue to impose strict zoning laws that restrict the building of residential units in areas of high demand, raising housing costs and promoting homelessness.

Rather than dwell on the calamitous state of public policy at the Federal level, classical liberals should turn their attention to the places where innovation matters most—the states.

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Free the People publishes opinion-based articles from contributing writers. The opinions and ideas expressed do not always reflect the opinions and ideas that Free the People endorses. We believe in free speech, and in providing a platform for open dialog. Feel free to leave a comment!

Jack Salmon

Jack Salmon is an economic analyst at a university-based research center. His research focuses on the US economy, the federal budget, higher education, and institutions and economic growth. His commentary has been featured in a variety of outlets, including the Hill, Business Insider, RealClearPolicy, and National Review Online.

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