In the final paragraph of On Liberty (paragraph 23 of “Chapter V: Applications”) that I quote at the end of this post, John Stuart Mill contributes a twist on the debate about what is called “Federalism” in the US. He argues that while the central government should be slow to overrule regional and local governments, it should be quick to denounce actions that it thinks are bad. This is an idea I had not heard before. By and large, the debate I have heard about Federalism moves between the two alternatives of strengthening central government power or respecting regional and local government actions. The middle course of the central government strenuously criticizing what it sees as bad actions of regional and local governments is not something I have heard much discussion of.

Moreover, what criticism of state and local actions I have heard from the national government has been mostly either in the area of social policy such as gay rights or abortion, or has been a general criticism of a state or locality having policies too much in line with the opposing political party.

I can think of two areas where greater central government criticism of the actions of regional and local governments is called for: criticism of overly tight limits on construction and criticism of regulations that disadvantage the poor in the workplace. Let me address each of these in turn.

Criticizing Limits on Construction

As lead-in, it is worth mentioning that in my travels to central banks around the world, many are very worried about financial stability; but a little inquiry reveals that their biggest worry about financial stability boils down to worrying about soaring house prices in the capital city and other large cities. As Matt Rognlie points out, soaring house prices also contribute a lot to inequality. There is an easy solution to soaring house prices: making construction easier. And with all all of the bureaucracy attending new construction in most big cities in rich countries around the world, it is not hard to think of bureaucratic reforms that could make construction much, much easier.

The problem boils down to a political economy problem so easy to understand and so important for social welfare that it deserves to be taught in every Economics 101 class: local governments, if they try to maximize the welfare of local residents, try to tilt rents, house prices, and other building prices too high because they don’t take into account the benefit to those not now living in the city of having low house prices and rents in the city. Pecuniary externalities only cancel out of calculations of total surplus if the surplus of everyone involved in a market is included.

Given issues of congestion, wind tunneling, shadows cast by tall buildings, etc., the exact optimal amount of construction in a city for a given social welfare function is a complex calculation. But what can be said with perfect confidence is that if a local government makes the complex calculations well and maximizes a social welfare function for local residents, it will definitely push prices too high by permitting too little construction relative to a criterion that appends to the same social welfare function for local residents some accounting of the welfare of those who do not now live in the city, but might want to in the future, who would benefit from low prices and rents in the city.

In other words, although local governments are likely to be quite good at deciding exactly where within a city and according to what building codes building should be allowed within a city for any give total amount of construction, local governments can’t be trusted to make the right decisions about the total amount of construction. The central government should therefore see it as part of its job to push for more construction at least by roundly criticizing local governments who don’t allow enough construction. At a minimum, the national government should make sure that the fundamental selfishness of most local governments in not allowing more construction should be exposed clearly to view.

I don’t see a principled reason why national government actions beyond criticism couldn’t be justified, but I think it makes sense to try criticism first.

Criticizing Work Restrictions That Keep the Poor Out of Jobs

I have written quite a bit about work restrictions that make it harder for the poor to get jobs. Take a look, for example at these:

Because those one rung up on the economic ladder are much more likely to vote than the very poor, there are many, many policies that favor those one rung up on the economic ladder at the expense of the very poor. And it can sometimes be easier to generate concern for the long-run interests of the very poor at the national level than at the local level, since localities can always hope to simply encourage the very poor to go find another locality to hang out in.

An Exhortation

In both of the examples I have given: criticizing construction limitations and criticism impediments to the very poor getting jobs, it is not necessary to depend on the national government to do all of the criticizing. Each of us can raise our voices and contribute to the criticism. It is my hope that through our efforts the ugly self-interest in overly tight limitations on construction and in trying to drive out of existence jobs that are accessible to the very poorwill be exposed in each case where it arises. For extra inspiration, take a look at my post “Keep the Riffraff Out!” and my sermon “The Message of Jesus for Non-Supernaturalists.”

John Stuart Mill’s Take

With those examples in mind, consider the way John Stuart Mill puts his argument:

To determine the point at which evils, so formidable to human freedom and advancement, begin, or rather at which they begin to predominate over the benefits attending the collective application of the force of society, under its recognised chiefs, for the removal of the obstacles which stand in the way of its well-being; to secure as much of the advantages of centralized power and intelligence, as can be had without turning into governmental channels too great a proportion of the general activity—is one of the most difficult and complicated questions in the art of government. It is, in a great measure, a question of detail, in which many and various considerations must be kept in view, and no absolute rule can be laid down. But I believe that the practical principle in which safety resides, the ideal to be kept in view, the standard by which to test all arrangements intended for overcoming the difficulty, may be conveyed in these words: the greatest dissemination of power consistent with efficiency; but the greatest possible centralization of information, and diffusion of it from the centre. Thus, in municipal administration, there would be, as in the New England States, a very minute division among separate officers, chosen by the localities, of all business which is not better left to the persons directly interested; but besides this, there would be, in each department of local affairs, a central superintendence, forming a branch of the general government. The organ of this superintendence would concentrate, as in a focus, the variety of information and experience derived from the conduct of that branch of public business in all the localities, from everything analogous which is done in foreign countries, and from the general principles of political science. This central organ should have a right to know all that is done, and its special duty should be that of making the knowledge acquired in one place available for others. Emancipated from the petty prejudices and narrow views of a locality by its elevated position and comprehensive sphere of observation, its advice would naturally carry much authority; but its actual power, as a permanent institution, should, I conceive, be limited to compelling the local officers to obey the laws laid down for their guidance. In all things not provided for by general rules, those officers should be left to their own judgment, under responsibility to their constituents. For the violation of rules, they should be responsible to law, and the rules themselves should be laid down by the legislature; the central administrative authority only watching over their execution, and if they were not properly carried into effect, appealing, according to the nature of the case, to the tribunals to enforce the law, or to the constituencies to dismiss the functionaries who had not executed it according to its spirit. Such, in its general conception, is the central superintendence which the Poor Law Board is intended to exercise over the administrators of the Poor Rate throughout the country. Whatever powers the Board exercises beyond this limit, were right and necessary in that peculiar case, for the cure of rooted habits of maladministration in matters deeply affecting not the localities merely, but the whole community; since no locality has a moral right to make itself by mismanagement a nest of pauperism, necessarily overflowing into other localities, and impairing the moral and physical condition of the whole labouring community. The powers of administrative coercion and subordinate legislation possessed by the Poor Law Board (but which, owing to the state of opinion on the subject, are very scantily exercised by them), though perfectly justifiable in a case of first-rate national interest, would be wholly out of place in the superintendence of interests purely local. But a central organ of information and instruction for all the localities, would be equally valuable in all departments of administration. A government cannot have too much of the kind of activity which does not impede, but aids and stimulates, individual exertion and development. The mischief begins when, instead of calling forth the activity and powers of individuals and bodies, it substitutes its own activity for theirs; when, instead of informing, advising, and, upon occasion, denouncing, it makes them work in fetters, or bids them stand aside and does their work instead of them. The worth of a State, in the long run, is the worth of the individuals composing it; and a State which postpones the interests of their mental expansion and elevation, to a little more of administrative skill, or that semblance of it which practice gives, in the details of business; a State which dwarfs its men, in order that they may be more docile instruments in its hands even for beneficial purposes—will find that with small men no great thing can really be accomplished; and that the perfection of machinery to which it has sacrificed everything, will in the end avail it nothing, for want of the vital power which, in order that the machine might work more smoothly, it has preferred to banish.

Note: This post is the latest in a series on John Stuart Mill’s “On Liberty” that begins on my Tumblr blog “Confessions of a Supply-Side Liberal.” Links to others can be found here:

Chapter II John Stuart Mill’s Brief for Freedom of Speech

Chapter III: John Stuart Mill’s Brief for Individuality

Chapter IV: John Stuart Mill’s Brief for the Limits of the Authority of Society over the Individual

More recents John Stuart Mill posts can be found in my