For Policy Reform, Look to the States

Otto Neurath, a prominent socialist political economist 100 years ago, argued that governments in peacetime would work better with wartime-level budgets and procedures. With their $3.5 trillion budget resolution, which has recently been dubbed “a cradle-to-grave reweaving of [the] social safety net,” congressional Democrats have gone full Neurath, citing a range of climate, family, and employment emergencies to justify their plan amid relatively good economic conditions. Much criticism of the Democrats’ plan has focused on the amount of spending and its partisan dynamics, and rightly so. But it is also worth stepping back a bit and noting how old-fashioned the Democrats’ approach to social spending appears, especially when compared to state-level approaches to issues that are important to Americans.

Everyday people are always less ideological than policymakers in Washington want them to be. States often meet them where they are. And while most Americans like the sound of free college, child care, and paid leave (who wouldn’t?), when asked which single issue concerns them most where they live, people worry more about the basics.  For instance, in a new unpublished AEI national survey, the top issues among conservatives, liberals, and moderates alike are crime and high taxes, followed by economic concerns such as the need for good jobs and community problems such as drugs and homelessness. Environmental, immigration, and public health concerns—in the midst of a pandemic, no less—were low on the list. 

When dealing with bread-and-butter issues at the state level, lawmakers in both parties over the past decade have been moving away from the “we can subsidize our way out of this” approach, which still dominates the left’s thinking in Washington (and has come to dominate the thinking of some on the right, too), to removing or rewriting rules that get in the way of people solving problems themselves. Eight years ago, the political scientist Steven Teles argued that the complexity, not the size, of government had become policymakers’ biggest challenge. For example, he highlighted the ways in which our complicated tax code, healthcare regulations, and overlapping K-12 education rules create problems are absent in earlier, more straightforward programs such as Social Security. Federal policymakers may not have taken that argument to heart, but state lawmakers have started to.

State policymakers are no less interested than members of Congress in having a lot of money to spend on policy problems, but they have increasingly focused on this different path, which we might refer to as “decluttering.” Instead of subsidizing important things like costly housing or low-paying jobs, the decluttering mindset seeks to diminish or remove the rules and requirements that drive up the cost of housing or prevent people from seeking higher-paying jobs in the first place. 

This type of activity—which is the result of a lot of research and growing consensus the past 15 years—is picking up, in a bipartisan way, in three important areas that are worth exploring for application elsewhere.

The first concerns just about everyone’s single greatest expense: housing. Not long ago, debates about affordable housing in Washington and state capitals centered mostly on providing additional subsidies to cover the increased cost of housing. Over the past decade, the debate has shifted in a bipartisan way at the state level to loosening rules that restrict supply and that prevent certain types of housing from being built. Under Republican leaders in California, of all places, Anaheim has experimented with “overlay” zones to free up industrial land for residential and commercial use, adding 5,000 units of housing where none previously existed, and San Diego implemented nearly 50 zoning changes to increase housing supply and lower the cost of construction. A number of major metropolitan areas under Democratic leadership, such as Minneapolis, Charlotte, and Portland, have recently introduced various measures to permit more units of housing in areas previously dominated by single-family-only zoning. 

Much of the debate over zoning gets hung up in accusations of NIMBY-ism and racism, but surveys show that people in the densest places welcome more housing and find economic rather than anti-racist rationales for it most compelling. When it comes to something as important as housing, Americans want good choices, and they don’t want the issue politicized. Meanwhile, the Democrats’ massive new budget plan will likely try to keep alive the old model of subsidies as a way of pretending to care about affordability.

A second decluttering initiative concerns changes to state licensing requirements. According to the National Council of State Legislatures (NCSL), states have introduced more than 3,500 bills to reform occupational licensing since 2017. The most frequently introduced measures deal with fee requirements, licensing reciprocity with other states, or easing licensing requirements for military families or those with criminal histories. Licensing reform has also been a popular topic for governors, with at least eight naming it as a priority in their State of the State addresses in 2019. According to the NCSL study, six of those states enacted a licensure reform bill in that session.

In just the past few months, Florida has passed laws repealing and reforming more than 30 license requirements and prohibiting new ones for many occupations in building trades, Arkansas has lifted prohibitive cosmetology requirements, and Arizona has reformed telemedicine rules to make the practice more widely available. 

Both Presidents Obama and Biden have acknowledged that licensing is a real problem, but you wouldn’t know it from the Democrats’ current set of priorities. Free college is what you resort to when you gave up long ago on doing the hard work of addressing the rising costs of getting market-relevant skills. 

A third, newer decluttering initiative concerns ending or curtailing non-compete agreements, which have increasingly prevented lower-wage individuals from switching jobs to a competitor firm. Today, roughly 20 percent of all workers, or 30 million Americans, are covered by non-compete agreements. Forty percent have probably been bound by a non-compete agreement at some point. While it might seem like the obvious target for such agreements is workers in professional fields like technology or finance, one study found that a third of workers earning under $40,000 in jobs ranging from fast-food servers to janitorial services report signing such an agreement at some point during their career.  Job-hopping is one of the time-tested ways that lower-wage earners and those early in their careers experience early upward mobility. Non-competes deny them this pathway.

As a result, support has been growing over the past few years at the state level to fix the problem. Ten states have enacted legislation limiting the use of non-compete agreements since 2019. Just last year, 17 states introduced legislation aimed at curtailing the use of these agreements in some form. States’ efforts range from banning non-competes for lower-wage workers to limiting their use in specific professions. 

Federal policymakers have begun to introduce non-compete reform legislation, and President Biden has expressed support for the same. Federal policy is once again following state-level innovation, as it has done in the past major reforms to policing, schools, and welfare. 

Other important decluttering ideas concern eliminating prohibitions on innovative training providers in workforce development systems or rules that limit access to more affordable healthcare options. 

There is nothing mutually exclusive about decluttering initiatives and increased social spending. Indeed, some members of Congress have supported both on either side of the political aisle. But it is worth drawing attention to how the two approaches differ, and why it matters.

First, decluttering initiatives are based on a traditional and tested view of human agency—namely, when you free people up to decide for themselves where to live and which jobs to pursue, people then generally do the work on their own. Much—though not all, to be fair—social spending policy today is defended as a last-ditch effort to protect helpless or victimized classes of people against macro forces over which they have no control. Decluttering has confidence in people’s ability to make choices and pursue what is best for them when the thicket is cleared and they have real options. 

Second, new federal rules will accompany new social spending, overregulating aspects of our lives at a time when we should be doing the opposite.  Expanded funding for child care, Medicare, colleges, and affordable housing is not just about money, it is also about expanded regulatory regimes. Decluttering initiatives start with freeing up new activity first, and then ask about spending secondly. We have done this before. In what can be seen as the most comprehensive repudiation of the Great Society programs of the 1960s, a number of policy reforms in the early 1990s can be seen as decluttering precursors. The first charter school and voucher laws loosened rules on where families could send their children to school with public funding, for instance, and public housing reforms freed up more and better options for recipients of public housing assistance. Given the current appeal of decluttering initiatives at the state level, we should be seeking more of them first, before we adopt new programs and the rules that accompany them.

Democrats’ “full Neurath” approach looks as antiquated as its namesake, better suited to 1921 than 2021. Decluttering has picked up steam precisely because it is what we need now—in the present century.  

Ryan Streeter is the director of domestic policy studies at the American Enterprise Institute. 

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