Reagan, States’ Rights, and the Mortgage Crisis

The following is an essay drafted by CLS's very own Ethan Frechette (Class of 2009). Ethan is a friend of the ACS Blog and welcomes comments and criticisms.

In 1964, civil rights workers were being murdered in Philadelphia, Mississippi. Then, in 1980, Ronald Reagan decided to kick off his Presidential campaign there. That’s a pretty ugly juxtaposition, and David Brooks is pretty upset about it. Well: he’s not so much upset about the actual juxtaposition; he’s upset that people keep bringing it up. (“People” here seems mainly to be Mr. Brooks’s fellow Times columnist Paul Krugman, whose new book re-tells the story.)

It comes up because, as Mr. Brooks says, Reagan was working on a strategy of picking up votes “where racial tensions had been strongest,” and Reagan traveled down to Mississippi to say, among other things, “I believe in states’ rights,” and some people think that all adds up to the Great Communicator’s deliberately sending a signal to white racists. That signal would be, “I’m with you.”

But these people—these “left-wing commentators”—are so eager to spread their calumnies and agitprop that they’ve overlooked the central fact, which is not a visit to a place famous for murder, not the invocation of racist code, and certainly not an electoral strategy of appealing to racism.

The key fact here is that the fair was in town. Not just any fair: the Neshoba County Fair, Mississippi’s Giant House Party (registered trademark; really). This is a fair that’s listed on the National Register of Historic Places.

Reagan wasn’t going to miss a fair like that. And if, after hearing about this fair, you’re enough a paranoiac to imagine the visit was some kind of message, Mr. Brooks points out that Reagan and his staff decided to go to Mississippi before visiting the Urban League because “it would send the wrong message to go straight from the Urban League to Philadelphia, Miss.” Hm.

(In fairness to Mr. Brooks, I might be misrepresenting his argument a little bit. He’s very upset about some slur against Reagan, and it seems like the slur would be that Reagan was appealing to racism. But when Mr. Brooks actually pins the slur down in words and not implication, he says “[i]t posits that there was a master conspiracy to play on the alleged Klan-like prejudices of American voters.” So maybe Mr. Brooks actually concedes the appeal to racism and it didn’t amount to a “master conspiracy.” Or it could be that whatever racism was being played on didn’t quite rise to the “Klan-like” level of actual lynchings. That’s an argument he can win, but I’m not sure why he wants to.)

Anyway, it’s not actually very interesting to notice that David Brooks has made a silly argument. But the importance of “states’ rights” in all this is interesting--to me, at least. You don’t actually hear the phrase “states’ rights” these days, but it used to be popular with conservatives. It also used to be code for racism.

(Even Mr. Brooks says it was “callous, at least” to use the words in Philadelphia, Mississippi, although he cryptically notes that the phrase “didn’t spark any reaction in the crowd.” (What on earth can that mean? That it wasn’t so terrible to use the phrase because it didn’t spark some kind of bonfire of “Klan-like” behavior?) Also, Reagan said other things in the speech. He didn’t just stand up there repeating “states’ rights,” as you’d expect if he were appealing to racism. And he told some jokes. But there I go again. Enough with Mr. Brooks.)

Of course, “states’ rights” wasn’t just code for racism, and small-government conservatives had perfectly legitimate reasons for advocating them. As Reagan said, “I believe in states’ rights. I believe in people doing as much as they can at the community level and at the private level.”

And even if you believe government can be an okay thing, it’s easy to get behind the idea of local governance for reasons having nothing to do with limiting the size of the central government: for instance, you might think that local government is both more responsive to local issues and more accountable to voters. Or you might like the idea of lots of local governments trying various approaches to difficult problems, on the theory that diversity is a helpful precondition to innovation, as Columbia Law School Professors Michael Dorf and Charles Sabel have argued.

And as it happens, the issue of states’ rights is alive and well, although now it mainly goes around under the name of Federalism, or the New Federalism, or Democratic Experimentalism. But here’s the twist: conservatives aren’t so sure about states’ rights anymore.

I always perk up when this kind of thing happens—a political group grabs onto a principle and heavily invests itself in that principle as a matter of principle, only to back quietly away when the implications start to turn against their ideology. (My favorite example is judicial activism: now that the Supreme Court’s producing right wing opinions, judicial activism seems like it might be all right with a lot of conservatives.)

It’s not that I’m shocked by extreme hypocrisy: I’m just fascinated by it. For me, it’s like watching one of those contortionists fit herself into a box the size of a Chinese food takeout carton: I know perfectly well that it can happen, and I’ve seen it before, but it’s a phenomenon so alien to my innate sense how people work that I can’t stop watching. Even though it makes me a little queasy.

Also, less weirdly, I’m interested right now because the federal government’s in the midst of deciding how to respond to various predatory lending practices that have played a big part in the mortgage meltdown, and it’s entirely possible that the result will be less regulation of predatory lending. More on that later. First, a super-quick history of the evolution of states’ rights advocates:

Once upon a time, everyone pretty much assumed that a strong centralized government would impose more, and more stringent, regulations than a lot of states would. So even if you didn’t care about the size of the central government, an opposition to regulations would get you to the same place. (As in Reagan’s “I believe in people doing as much as they can at the community level and at the private level.” The private level bit only fits with states’ rights if they’re equated with less regulation.) The paradigmatic example is civil rights, of course, which is how “states’ rights” turned into a code phrase. But the assumption held across the board.

Now might not be the time for an extensive exploration of the ideas propping up that assumption, but my simplified theory is that its core was two different but convergent ideological notions of what a strong central government actually meant. (N.Y.U. Law School Dean Richard Revesz has a great chapter on this topic in the catchingly titled Regulatory Competition and Economic Integration, Daniel Esty & Damien Gerardin, eds.) The Left, I think, assumed the central government was more enlightened than a lot of state governments were, while the Right assumed that the central government was greedy by nature—that it would instinctively aggrandize itself, even at the expense of good policy. (It’s worth remembering the Democratic hegemony at the level of national government during this time.)

So both sides assumed a strong central government would regulate more extensively than a lot of state governments. The Left saw this as a good thing, because the more enlightened central government would stop states from racing each other to the bottom in areas like social services and environmental regulations. The Right saw it as a bad thing, because the greedy central government would inexorably extend its grasping tentacles, strangling the preferences of individuals who might be able to muster local but not national majorities—even when the locals knew best.

There’s more to it than this, but I’m not sure how much it matters, because if the assumption made sense once, it doesn’t anymore. The Right, while not doing anything at all to dispel anyone’s notion of rapacious central government, has done a superb job of inverting the assumption that a strong central government favors regulation.

And it’s not just that deregulation proponents are taking power and using it to back off regulations, although that’s happened, too. What’s striking is the extent to which deregulators have been able to use the central government to stop states from enforcing their own regulations.

The power comes from the Supremacy Clause, which you can find in Article VI of the Constitution, and which says that where state and federal laws conflict, the federal law is the one that counts. There are a lot of good reasons to have a Supremacy Clause, and if you’re a fan of deregulation, here’s a really good one: the central government can prohibit states from enforcing their own regulations.

For instance, a Clean Air Act, which Congress passed in 1966, sounds good if you’re worried about air pollution. But the Clean Air Act prohibited all the states but California from enforcing any standards stricter than the federal ones. (Here’s a great line from a case resulting from Massachusetts’ trying to raise its standards: “The frustration felt by the EPA and Massachusetts likely stems in part from the fact that Massachusetts’ aim . . . was to reduce air pollution, a laudable goal in its own right and, more importantly, the central purpose of the Clean Air Act. However . . .” the Clean Air Act forbid Massachusetts from trying to fulfill its own “central purpose.” Or maybe the court was wrong about what that central purpose really was?

Now there are some good arguments for uniform regulations, but there are also some good arguments against them. They’re exactly the ones conservatives used to make in favor of states’ rights. Conservatives don’t make those arguments anymore.

One of the areas where deregulators have had some nice success is predatory lending. A charitable view of the failure of federal agencies to address the problem is that the agencies are overwhelmed—it’s not that they’re uninterested in protecting consumers, just that they don’t have the capacity to do it. But then you’d imagine the federal government would be eager for the help states would love to provide. Instead, in 2004, the Office of the Comptroller of the Currency decided that federal law preempts state regulation of national banks, a decision the Supreme Court approved in Watters v. Wachovia. Federal agency to state regulators: take a hike.

In light of the states’ eagerness to regulate predatory lending on the one hand and the federal reluctance on the other, the quick pace of predatory lending “innovations,” and the regional variation of real estate practices, predatory lending should be an area where conservatives speak up for states’ rights to protect their own citizens. Or at least those conservatives whose entire ideology doesn’t consist of rooting for profit statements.

Congress is deciding right now how to respond to the sub-prime lending crisis—a crisis largely precipitated by predatory lending practices. Maybe the result will be something like the 1994 Home Ownership Equity Protection Act, which established federal law as the regulatory floor, rather than the ceiling. And maybe conservatives will speak up for the values of local responsiveness and accountability.

Maybe.