Kansas Gets it Right on Minimum RPM

 

Embracing Economic Science

 

Kansas Governor Sam Brownback  recently signed legislation reforming the state's approach to minimum resale price maintenance ("minimum rpm"), thereby conforming the law to the dictates of modern economic science.  (The legislation appears here. An official summary appears here.)  The legislation in question amended the state's Restraint of Trade Act to make it clear that the Act only forbids unreasonable restraints of trade, thereby incorporating into Kansas law the sort of "Rule of Reason" that the U.S. Supreme Court read into Section 1 of the federal Sherman Act in Standard Oil v. United States, 221 U.S. 1 (1911). In so doing, the new statute nullfied the Kansas Supreme Court's recent decision in O'brien v. Leegin Creative Leather Products, 277 P.3d 1062 (Kansas 2012), which had held that the state's Restraint of Trade Act bans any and all minimum rpm agreements, regardless whether the contract is reasonable in a particular case.     

 

The O'brien decision would have made perfect sense as a matter of antitrust policy in, say, 1950.  At that time economists and others were hostile to so-called "non-standard contracts," that is, agreements that limited the autonomy of dealers and others who purchased and took title to a manufacturer's product.  This hostility followed naturally from the state of economic learning at the time. For, as previously explained on this blog, during this era economists and others believed that complete or partial vertical integration could serve only two purposes: first, the realization of technological efficiencies and second, the creation or exercise of market power, by depriving rivals of sources of inputs or otherwise stifling competition.  Because minimum rpm and other non-standard agreements reached across the boundaries of one firm to dictate decisions by other firms, sometimes in other states, such agreements could not produce technological efficiencies.  As a result, economists and others inferred that such agreements, which reduced rivalry, necessarily fortified or exercised market power to the detriment of society's consumers.  The result was the so-called "inhospitality tradition" of antitrust law.  (See pp. 68-80  of this article for a more detailed explanation of the origins of the inhospitality tradition.) 

In 1960, however, everything changed.  In a path-breaking article, Professor Lester Telser explained how minimum rpm could prevent a manufacturer's dealers from free-riding on each others' promotional expenditures, thereby overcoming the market failure that would result if each dealer was left to his or her own discretion when determining promotional tactics. See Lester G. Telser, Why Should Manufacturers Want Fair Trade?, 3 J. L. & Econ. 86 (1960).  Six years later, and as previously recounted on this blog, Robert Bork reiterated Telser's argument and extended Telser's reasoning to non-price vertical restraints such as market division as well as horizontal price and non-price restraints that are ancillary to otherwise legitimate joint ventures. See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, part II, 75 Yale L. J. 373 (1966).  (See also here,  here, and here for this blogger's views on the appropriate characterization and treatment of such restraints)   

The Supreme Court eventually took these lessons to heart.  Thus, in 1977, the Court, citing Bork and others, overruled a prior decision that had banned non-price vertical restraints such as exclusive territories.   See Continental T.V. v. GTE Sylvania, 433 U.S. 36 (1977).  Two decades later, the Court, again citing Bork and others, overruled a previous decision condemning maximum rpm as unlawful per se. See State Oil v. Khan, 522 U.S. 3 (1997).  Finally, in Leegin Creative Leather Products v. PSKS, 551 U.S. (2007), the Court overruled Dr. Miles v. John D. Park & Sons, 220 U.S.373 (1911), which had banned minimum rpm outright.  Writing for the Court, Justice Kennedy persuasively explained that Dr. Miles was based upon an economic misconception, namely, that manufacturer-imposed minimum rpm is economically indistinguishable from a horizontal cartel among the dealers of a manufacturer's product.  Relying upon the work of Bork, Telser and others, Justice Kennedy explained that, instead, manufacturer-imposed minimum rpm often produces significant efficiencies, by, among other things, preventing free-riding and thus ensuring an optimal amount of promotional expenditures, with the result that per se condemnation of the practice is not justified.  In so doing, the Court followed Standard Oil's requirement that courts employ "reason" to adjust antitrust doctrine in light of "more accurate economic conceptions," that is, advances in economic science.

Of course, the Supreme Court's Leegin decision only governed the federal Sherman Act, which generally does not preempt more interventionist state antitrust regulation, no matter how ill-advised.  Thus, Leegin left states perfectly free to ban minimum rpm as unlawful per se under their own antitrust laws, as some have, thereby reducing the welfare of a state's consumers.  Perhaps Kansas law left the O'brien court with little choice but to reaffirm such a per se ban in 2012.  Be that as it may, the people of Kansas are fortunate to have a legislature apparently committed to conforming the state's antitrust law to the dictates of economic science.

Richmond-Times Dispatch Fumbles on Originalism

As previously explained on this blog, the traditional rationale for judicial review begins with the assumption that the Constitution itself is binding law, designed to constrain future generations.  As John Marshall explained in Marbury v. Madison, 5 U.S. 137 (1803), the Constitution announces certain "fundamental . . . principles," principles the ratifiers "designed to be permanent."  As Marshall further explained, the Constitution therefore imposes upon judges (and other officials) a duty to enforce the document's original meaning so as to implement the ratifiers' choices.  Courts that ignore this meaning while purporting to exercise judicial review thus exceed their authority and forfeit any claim of legal legitimacy.  (See also here for an extensive discussion of how courts should approach judicial review.)

 

In a house editorial earlier this week, the Richmod Times-Dispatch tried to implement such an "original meaning" approach to constitutional interpretation.  For this the Times-Dispatch deserves enormous credit; many media outlets purport to invoke the Constitution as the basis for a preferred policy choice while ignoring the document's original meaning.  Despite this promising start, however, the Times fumbled just before crossing the goal line.       In particular, the Times claimed that, because Section 5 of the Voting Rights Act was Constitutional when first passed in 1965, an identical statute passed in 2006 (after the prior version expired) must also be constitutional.  Thus, the paper concluded, judicial invalidation of the 2006 Act would necessarily substitute the Justices' legislative views for those of Congress and thus constitute unwarranted judicial activism.    The paper's argument is worth quoting in full:

 

"The arguments against Section 5 may be valid. Yet this is not a matter for the Supreme Court to decide. Although the court has changed its attitude toward various questions – with Brown v. Board of Education, for instance, it no longer permitted the segregated schools that had been tolerated in the past – a change regarding Section 5 would be intellectually preposterous. By overturning Section 5, the court in essence would say, “We used to believe this was constitutional, but times have changed and we no longer do.” The answer to the policy question falls outside the court’s competence. Several justices have indicated their skepticism of Section 5’s necessity. Their personal opinions regarding the provisions do not matter. The section’s fate properly rests with Congress. And in 2006, Congress rejected efforts to rewrite Section 5.

 

Many conservatives would welcome a decision against Section 5. Such a reaction would raise doubts regarding their professed opposition to judicial activism. How would conservatives react if the court were to rule that the Second Amendment no longer restricts gun control because the establishment of a standing Army, a Navy, an Air Force and a Marine Corps means the defense of the realm does not depend on militias in the sense that the Founders understood them?

 

The Times-Dispatch hopes that Antonin Scalia and his peers remember they are justices, not legislators."

 

This argument misconceives both the nature of constitutional meaning and the appropriate approach to judicial review.  The Constitution does not always enshrine particular results.  Instead, as Marshall explained, the document often articulates fundamental and permanent principles.  As the Supreme Court explained more than eight decades ago, changes external to the Constitution can compell courts to sustain legislation once deemed unconstitutional or strike down legislation once thought perfectly constitutional. 

 

"[W]hile the meaning of constitutional guaranties never varies, the scope of their application must expand or contract to meet the new and different conditions which are constantly coming within the field of their operation. In a changing world, it is impossible that it should be otherwise. But although a degree of elasticity is thus imparted not to the meaning, but to the application of constitutional principles, statutes and ordinances which, after giving due weight to the new conditions, are found clearly not to conform to the Constitution of course must fall."

 

See Village of Euclid v. Ambler Realty, 272 U.S. 365 (1926) (Sutherland, J.)

 

Indeed, Justice Scalia, whom the Time-Dispatch called out, has expressly endorsed such an approach to constitutional interpretation.  In particular, Justice Scalia has explained that changes in technology, external to the Court, can require changed applications of the 4th Amendment.   See County of Riverside v. McGlaughlin, 500 U.S. 44 (1991).  In his McGlaughlin dissent, Justice Scalia explained that the common law principles that animate the Fourth Amendment remained constant and unchanged.  That is, the police can only hold a suspect long enough to find a magistrate who can make a probable cause determination.  At the same time, he said, technologial changes required a new application of that principle given, as Justice Scalia said, the advent of "helicopters and telephones."  This new technology, he said, made it easier to locate a magistrate and obtain a determination of whether probable cause supported the detention, thereby reducing to 24 hours the period of time police can hold a suspect before obtaining a probable cause hearing.

Indeed, several years before McGlaughlin, Judge Robert Bork articulated a similar approach to implementing an "original meaning" methodology.  See Ollman v. Evans, 750 F.2d 970  (D.C. Cir. 1984) (en banc)(Bork, J. concurring).  Speaking of the task of a Judge applying the First Amendment Bork said:

"There would be little need for judges --- and certainly no office for the philosophy of judging --- if the boundaries of every constitutional provision were self-evident.  They are not.  In a case like this, it is the task of judge in this generation to discern how the framers' values, defined in the context of the world they knew, to the world we know.  The world changes in which unchanging values find their application."

None of this is to say that the Justices should invalidate the 2006 Voting Rights Act.  That's a question beyond the scope of this post.  One thing is clear, however:  the Court's analysis should not end with a determination that the statute was constitutional in 1965.

 

Searching For Presidential Courage

 

Secret Reader of this Blog?

In today's oral arguments regarding the Defense of Marriage Act ("DOMA"), Chief Justice John Roberts leveled a powerful critique of President Obama's incoherent approach to the statute.  In particular, the Chief Justice questioned the President's continued enforcement of the Act, despite his simultaneous determination that there are no plausible arguments in favor of the statute's constitutionality.  Questioning an advocate appointed to contend that the Court lacked jurisdiction, the Chief Justice suggested that the President should not enforce a statute that he believed to be unconstitutional.

“I would have thought that your answer would be that the Executive’s obligation to execute the law includes the obligation to execute the law consistent with the Constitution.  And, if he has made a determination that executing the law by enforcing the terms in unconstitutional, I don’t see why he doesn’t have the courage of his convictions and execute not only the statute, but do it consistent with his view of the Constitution, rather than saying, oh, we’ll wait [un]til the Supreme Court tells us we have no choice.”

Readers of this blog may find the Chief's argument that the President must decline to enforce unconstitutional statutes familiar.  Over two years ago, a post on this blog asked whether "the President has the Courage of his (Purported) Constitutional Convictions," after the Obama Administration announced it would continue to enforce DOMA despite its conclusion that there are no plausible arguments in favor of the statute's constitutionality.  As that post pointed out,  Article II of the Constitution, which requires the President to take care that the laws are faithfully executed, imposes upon the President an independent duty to decline to execute laws the President believes contravene the Supreme Law of the Law, namely, the Constitution itself.  Indeed, President Obama has himself asserted the authority to decline to enforce statutes he believes to be unconstitutional.  A previous post on this blog defended President Obama's exercise of this power of Presidential Review, demonstrating that arguments to the contrary contradict the text, structure and history of the Constitution. 

Applying these principles over a year ago, this blog explained:

"President Obama's approach seems internally incoherent.  On the one hand, he claims that he will not defend DOMA because it is unconstitutional, indeed so unconstitutional that there are no reasonable arguments in support of the statute.  At the same time, the President and his Attorney General both assert that they will continue to enforce what they believe to be a blatantly unconstitutional law.  Huh?  If DOMA really is so blatantly unconstitutional, because it works unconstitutional discrimination, analogous to discrimination based on race or religion, should not the President refuse to enforce DOMA altogether?   . . . . Why President Obama nonetheless continues to enforce DOMA, given his purported belief that the statute is plainly unconstitutional, is perplexing and causes this blogger to wonder whether President Obama is as certain about his constitutional views on the subject as Attorney General Holder's statement suggests."

This blogger is happy to see that the Chief Justice agrees, whether or not he is a reader of this blog!

Rand Paul's Effort to Overregulate Drone Use

 

Lethal (and regulated?)

 

 

 

Very Lethal (but not regulated)

 

Extremely Lethal (still not regulated)

    A previous post documented Senator Rand Paul's claim that the Due Process Clause of the Fifth Amendment absolutely proscribes the use of lethal military force, even when expressly authorized by Congress, against American citizens who have joined with foreign enemies to attack the United States on American soil.  For instance, in a March 5 statement still posted on the Senator's website, Senator Paul criticized Attorney General Holder for recognizing the possibility that the President could employ military force against American citizens on American soil in extraordinary circumstances.

"The U.S. Attorney General's refusal to rule out the possibility of drone strikes on American citizens and on American soil is more than frightening - it is an affront the Constitutional due process rights of all Americans."

     This statement "speaks for itself" as a condemnation of any and all drone strikes against American citizens on U.S. soil. 

     Senator Paul has now changed his tune somewhat, abandoning his unqualified opposition to the use of force against U.S. Citizens on U.S. soil.  Instead, the Senator now simply opposes the use of military force against non-combatants on U.S. soil, a use this Administration has never, so far as this blogger is aware, contemplated.   In other words, Senator Paul now apparently agrees with the Obama Administration, highly regarded experts (see here and here), and this blogger that Congress may authorize the Commander-in-Chief to employ lethal force against American citizens on American soil in some circumstances. 

 

    Indeed, Senator Paul's conversion is so complete that he, along with Senator Ted Cruz, have authored proposed legislation that recognizes the President's authority to employ drones, such as the MQ-9 Reaper pictured above,   in certain circumstances.  In particular, the operative portion of the proposed legislation provides as follows:

        "The Federal Government may not use a drone to kill a citizen of the United States who is   located in the United States. The prohibition under this subsection shall not apply to an individual who poses an imminent threat of death or serious bodily injury to another individual. Nothing in this section shall be construed to suggest that the Constitution would otherwise allow the killing of a citizen of the United States in the United States without due process of law."

         Such legislation apparently codifies limits that, according to Senators Paul and Cruz, the Due Process Clause imposes on the President's ability to use drones against American citizens on U.S. soil.  Moreover, this legislation certainly reflects an improvement over Senator Paul's initial position that any and all drone strikes on American soil violate the Due Process Clause.  At the same time, in the opinion of this blogger, this legislation overregulates the President's use of drones, suffering as it does from three defects.

         First, by limiting such strikes to instances in which there is "imminent threat of death or serious bodily injury," the legislation unduly restricts the President's ability to employ drones against enemy combatants.  After all, not all combatants ipso facto pose an imminent threat of death or serious bodily injury to other persons at all times.  Consider, for instance, thousands of heavily-armed American citizens who, perhaps in league with foreign powers, launch an insurrection from a state in the Midwest and march towards Washington with the announced intent of toppling the national government.  Must the President wait until the rebels, who are assuredly combatants once they take up arms, are close enough to pose an imminent threat to Washington to strike the insurgents?   The legislation mandates such Presidential dithering, contrary to Senator Paul's apparent concession that striking such combatants would not violate the Due Process Clause.   That Clause does not prevent the President from choosing the battlefield and taking the fight to the enemy before it approaches its military objective.

     Moreover, what if such insurgents, instead of threatening imminent death or bodily harm, instead "mere" threaten imminent destruction of ammunition dumps, rail lines and air bases.  Must the President stand idly by or rely on civilian authorities to prevent such battlefield-creating destruction, if possible?   As Michael Ramsey has explained, historical practice establishes that, once an individual takes up arms and becomes a combatant, Due Process Protections simply do not apply.  (In Ramsey's own words, "[i]t was never thought in the eighteenth century that battlefield combatants had any sort of protection against being killed, even if they were citizens fighting against their own country, nor that combatants had to check the citizenship of their opponents before launching attacks.")  The Due Process Clause thus provides no such protection to individuals who have taken up arms against the United States and are actively engaged in battlefield combat, even if such combat consists solely of destroying military equipment or supplies.

       Second, the proposed statute applies exclusively to drones and thus does not prevent the President from using other weapons platforms, like the AH-64 Apache Helicopter and B-52 Stratofortress pictured above, on American soil.  This omission is ironic to say the least: the AH-64 and B-52 are more lethal than any drone the United States has deployed.   For instance, the AH-64 carries slightly more Hellfire missiles than the Reaper and also deploys a 30 mm chain gun.  Moreover, the B-52 Stratofortress can carry 70,000 pounds of bombs.   This blogger is not aware of any principle explaining why the Due Process Clause can prevent drone strikes but not carpet bombing.

     To be sure, the statute contains a proviso stating that the express prohibition on drone strikes does not thereby suggest that the "[c]onstitution would otherwise allow the killing of a citizen of the United States in the United States without due process of law." However, this is an awkward provision to say the least.  After all, as explained in a previous post on this blog, the September 18, 2001 Authorization to Use Military Force ("AUMF") itself authorizes the President to use force against Al Qaeda and its supporters.  Absent more detailed legislation to the contrary, then, the President is entitled to employ whatever weapons Congress has placed at his disposal, including B-52s and AH-64s, to execute the AUMF, including within the United States if necessary.  Moreover, in exercising this authority, the President has an independent duty to ascertain and adhere to any relevant constitutional limitations.   Thus, the legislative proviso quoted above subtracts nothing from the AUMF, leaving the President entirely free to employ non-drone lethal force when he believes that such a use of force comports with the Due Process Clause.  Hopefully the President would take a more pragmatic and historically-ground view of the limits imposed by the Due Process Clause and reject the sort of mechanical application of the imminence standard that the proposed legislation would impose on the use of drones.

        Third, if passed, the legislation would strangely leave the President less able than a local police department or individual state to counter insurrections by American citizens or combinations of Americans with foreign enemies.  After all, the statute applies only to the "Federal Government" and not the States or any subdivisions thereof.  Moreover, Article I, Section 10 of the Constitution allows the States to employ military force when necessary to repel invasions.  Finally, states retain vast police powers of the sort necessary to maintain law and order within their borders.  (See U.S. Constitution, Amendment X).  Thus, as written, the current draft legislation would leave states perfectly free to employ drones against Americans who side with foreign enemies against the United States.    Of course, states must comply with the 14th Amendment's Due Process Clause.  However, as explained above, due process constraints do not prevent states or the national government from employing military force against combatants before such combatants pose an imminent risk of harm.

      Hopefully the Congress will reject the Paul/Cruz effort to overregulate the use of Drones.


      

Fifth Circuit Protects Liberty and Consumers from Crony Capitalism

Struck a Blow for Economic Liberty

Sustained Crony Capitalism

Earlier today the U.S. Court of Appeal for the Fifth Circuit struck a blow for economic liberty, efficiency and consumer welfare.  In St. Joseph Abbey v. Louisiana State Board of Embalmers and Funeral Directors, No. 11-30756 (March 20, 2013), the Fifth Circuit invalidated rules promulgated by the Louisiana State Board of Embalmers granting funeral homes the exclusive right to sell caskets and thus excluding St. Joseph Abbey and other so-called third party vendors from selling caskets at reasonable prices.  Among other things, the court found that the Abbey produced and sold two models of casket: "monastic" and "traditional," for $1500 and $2000 respectively, prices significantly lower than those charged by the state's funeral homes.

The Fifth Circuit held that Louisiana's regulations coercively excluding various producers from the market abridged St. Joseph Abbey's economic liberty without due process of law, thus contravening the 14th Amendment to the U.S. Constitution.  Writing for the court, Judge Patrick Higginbotham, pictured above, rejected Louisiana's remarkable claim that a bare desire to enrich the state's funeral homes at the expense of grieving families was, without more, a valid "rational basis" that would support such exclusionary legislation.  Simply put, the court said, "naked economic preferences are impermissible [bases for legislation] to the extent they harm consumers." 

After rejecting Louisiana's bid for the authority to destroy economic liberty for the sake of enriching incumbent producers, the court went on to reject two other purported bases for the regulation.  First, the court rejected Louisiana's claim that the regulations helped ensure that grieving consumers made a wise selection of caskets in light of what the court called "complexities that arise from burial conditions in any given area."  According to the court, Louisiana law already required funeral directors to provide their clients with such advice, in return for a mandatory "basic services fee."  Hence, requiring consumers also to purchase their caskets from such funeral homes could not enhance the quality of advice consumers might receive.  Second, the court rejected the state's claim that such coercive exclusion protected public health and safety.  As the court pointed out, Louisiana law does not require burial in a casket in the first place, regulate the construction or design of caskets or require funeral directors to have any "special expertise in caskets."   Thus, there was simply no plausible connection between the ban on the sale of caskets by independent sellers like the Abbey and public health or safety.   If anything, it seems, the flimsy and patently pretextual nature of Louisiana's asserted rationales helped confirm that the rule were the product of industry capture of the regulatory process.  Or, as the court put it, the regulation entailed "the taking of wealth and handing it to others . . . [for the] protection of rule makers." 

The decision is remarkable for at least two reasons. First, as already noted, Louisiana openly and notoriously asserted the right coercively to abridge the Abbey's economic liberty for the sole purpose of enriching funeral directors at the expense of grieving consumers. Apparently Crony Capitalism is alive and well in Louisiana. Second, the Fifth Circuit expressly rejected this contention, holding that the Due Process Clause itself imposes certain restrictions on legislative goals in addition to those restrictions contained in the Bill of Rights and other constitutional provisions.  In so doing the court implicitly rejected language to the contrary in Ferguson v. Skupra, 372 U.S. 726, 728-31 (1963).  In Skupra, the Justices sustained a ban on debt adjustment by non-lawyers, without identifying any rational basis for the coercive infringement on occupational liberty.  (As the Fifth Circuit noted, however, subsequent  Economic Due Process decisions have, in fact, identified rational bases when rejecting challenges to similar legislation.  See New Orleans v. Dukes, 427 U.S. 297 (1976).)

More fundamentally and equally remarkable, today's decision seems in tension with the poorly-reasoned Slaughterhouse Cases, 83 U.S. 36 (1872).  Slaughterhouse, some will recall, involved a challenge to a previous example of Louisiana Crony Capitalism, namely, the state's grant of a monopoly over the slaughterhouse business in the parishes of Orleans, Jefferson, and St. Bernard, totaling over 1100 square miles.  In an opinion by Justice Miller, also pictured above, the Court rejected claims that this coercive imposition of a monopoly contravened the Due Process Clause, Equal Protection Clause or Privileges and Immunities Clause, holding that the monopoly grant fell within the police power.  This holding does not withstand even minimal scrutiny, given that generally applicable regulations could have satisfied any valid health or safety interest.  Simply put, the statute challenged in Slaughterhouse simply enriched some at the expense of others and would not have survived the Fifth Circuit's more realistic analysis.

No doubt some will criticize the Fifth Circuit for purported "judicial activism" along the lines of Lochner v. New York, 198 U.S. 45 (1905).  Both Lochner and its progeny, of course, protected occupational liberty and liberty of contract from abridgments, including minimum wages, maximum hours, state price fixing and the like, that fell outside the police power, that is, did not combat externalities or other market failure.  See also Charles Wolff Packing Company v. Kansas Court of Industrial Relations, 262 U.S. 522, 535-42 (1923) (voiding state's regulation of the wages of meatpackers in a highly competitive industry) (Taft C.J.) (unanimous). In so doing, the Court invalidated numerous measures that, for instance, imposed disproportionate costs on small firms, advantaging larger firms.  Moreover, as previously explained on this blog, federal interference with the sort of liberty that Lochner protected both deepened and lengthened the Great Depression, thereby creating unnecessary economic misery. In any event, the Fifth Circuit convincingly disclaimed any reliance upon Lochner and its progeny, which scrutinized both the means and ends of legislation more carefully than did the Fifth Circuit today.  Perhaps the Fifth Circuit's decision is the first step down the road toward revitalizing Lochner and greater protection for economic liberty.  If so, that road will be long indeed.

Happy Birthday Crandall v. Nevada

    
     Previous posts on this blog have extolled the virtues of competitive federalism. (See here, here and here, for instance.)  By diffusing the power to spend, tax and regulate among rival jurisdictions, a federal system forces states to compete among themselves to attract and retain productive citizens and business enterprises.  Like competition in a free market, such rivalry can induce states to supply an optimal mix of fiscal and regulatory policies.

    At the same time, the existence of numerous nominally-independent states does not thereby assure a well-functioning system of competitive federalism.  Instead, as this blog has previously explained, undue expansion of central political authority can interfere with competitive federalism, by distorting or removing the incentives that states possess to offer an optimal mix of fiscal and regulatory policies.  For instance, a prior post on this blog explained that federal labor laws that penalize a firm for opening a new factory in so-called "right to work" states can distort the incentives that states might other have to offer business-friendly labor policies.  Also, a more recent post explained that high federal income taxes, combined with the ability to deduct state taxes from one's federal taxable income, can allow high tax states to export the cost of even higher taxes to citizens in other states, thereby attenuating the threat that citizens subject to onerous tax and spending policies will migrate to other states and weaken the discipline of competitive federalism.

      The federal government is not the sole threat to competitive federalism, however; states themselves can adopt policies that undermine federalism.  For instance, if states refuse to recognize shareholders' decision to avail themselves of a particular state's corporate law, then competition between the states for corporate charters will not result in a "race to the top" and efficient corporate law.  Moreover, if states prevent their citizens from migrating to other states, then such states may avoid the negative consequences of adopting, say, confiscatory taxation or unduly burdensome regulation, thereby conscripting their citizens to endure suboptimal economic policies.

      Happily for the American system, the Supreme Court put an end to such conscription 145 years ago today, in Crandall v. Nevada, 73 U.S. 35 (1868).  In Crandall, the Court evaluated a Nevada statute that imposed a tax upon railroads and other modes of interstate transportation of $1 per passenger carried from Nevada to another state.  The Court unanimously invalidated the tax, holding that, in a federal system, individual states cannot discourage their citizens from exiting the state to, for instance, travel to the nation's capital or other organs of the national government.  Two concurring justices embraced a more convincing rationale, namely, that the statute in question contravened the dormant component of the Constitution's Commerce Clause, by deterring the free movement of citizens between states, for whatever purpose.  Just five years later, in the Slaughterhouse Cases, the Supreme Court reaffirmed this result, opining that the Privileges and Immunities Clause of the newly-adopted 14th Amendment protected certain rights of national citizenship, including the right of a citizen to travel from one state to another.  In so doing, the Court revived the protection for this right originally found in the Articles of Confederation, which provided that "the people of each State shall have free ingress and redress to and from any other State." 

     It should be clear that Crandall is a fundamental if underappreciated cornerstone of this nation's system of competitive federalism.  Without this cornerstone, states could effectively imprison their own citizens, foisting upon them various forms of economic and other oppression.  Markets cannot function effectively if firms or otehr market actors can force customers or suppliers to deal with them, and the "market" in which states in a federal system compete is no exception.