On a Central Federal Policy in Education in the U.S.: Implications for American Federalism

In a speech in January 2015, U.S. Education Secretary Arne Duncan urged a continued central role for the federal government in education policy. He said the president was proposing to increase federal spending on elementary and secondary schools by $2.7 billion; Congress had appropriated $67 billion to the U.S. Department of Education—with $23.3 billion for the Elementary and Secondary Education Act—in the 2015 budget.[1]  Typically, debate on the federal government’s role had focused on the use of standardized tests in holding schools accountable. I submit that a self-governing people has a duty to consider the wider implications, such as the impact of a greater role on the federal system. Otherwise, unintended consequences may show up after it is too late to do anything about them.

Federalism is rarely on the media’s radar screen in the U.S., yet this dimension can be detected in statements made by public officials. For example, in his speech, Duncan said, “If we walk away from responsibility as a country—if we make our national education responsibilities somehow optional—we would turn back the clock on educational progress, 15 years or more.”[2] In positing a responsibility as a country to education, he is claiming that national education responsibilities exist. This implies that the U.S. Government has a legitimate role. This is a contestable claim.

Under the U.S. Constitution, the powers of the federal government are limited, or enumerated, whereas those of the states are both enumerated and residual. Education is not explicitly listed among the federal government’s enumerated powers, but that government can spend money for the general welfare. Education certainly contributes to that. In fact, so many things do that reading “the spending clause” so broadly eviscerates (i.e., wipes out) the enumerating itself because the federal government could get around the list simply by spending money on an additional policy domain. Put logically, a broad reading of the spending clause contradicts the very notion of enumerating powers, so both in original intent and practically, the spending clause must surely apply to the general welfare via any of the enumerated powers. Spending on education is the task of the several states.

Sen. Lamar Alexander (R-TN), chairman of the Education Committee, brought federalism to the surface in his remarks at the time, but without presenting a coherent alternative. Referring to the “No Child Left Behind” law passed while George W. Bush was president, Alexander said, “My goal is to keep the best portions of the original law and restore to states and communities the responsibility for deciding whether teachers and schools are succeeding or failing.”[3] In other words, he wanted to retain the federal government’s role—making it better—even as he wanted to restore to the states and localities their responsibilities. Such cooperative or shared-competency federalism, while common in the E.U., runs up against the enumerated feature of federal power in the American system. Put logically, returning to the states their respective responsibilities would mean taking the federal government out of the education business. Practically speaking, retaining a role for the federal government risks further encroachment on the states.

Generally speaking, the more the enumerated feature of the U.S. Constitution is blurred or distended, the less the states will be able to act as a check against federal encroachment. The check feature of federalism can protect not only the states as viable republics in their own right, but also citizens from abuses of power on the federal level. Likewise, keeping the states from encroaching on the federal enumerated powers can enable the U.S. Government (e.g., the Department of Justice) to protect citizens from abuses of power from state officials. Civil rights during the 1960s is a case in point.

Therefore, the implications of education policy may be more important than the educational issues that pertain more directly to education. Keeping the implications on the system of public governance on the public’s radar screen is thus part of the responsibility of a self-governing people and its elected representatives.

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[1] Caroline Porter and Siobhan Hughes, “Education Secretary Presses Central Federal Policy Role,” The Wall Street Journal, January 13, 2015.

[2] Ibid.

[3] Ibid.

Fiscal Responsibility in Alaska: On the Challenge of Falling Oil-Tax Revenue

With West Texas Intermediate (WTI), the U.S. benchmark oil price, at $46.07 on January 12, 2015, lawmakers in Alaska were getting nervous because the government was relying on oil-industry taxes to cover 89% of the government’s operating revenue.[1] At the time, the government had a $3.5 billion deficit in the $6.1 billion budget.  How the governor, Bill Walker, planned to deal with the shortfall can give us a glimpse of what fiscal responsibility might look like in government.

In spite of the huge deficit relative to the total budget, Walker was asking government agencies to reduce their respective budgets by only 5% to 8% for the coming fiscal year. To cover the rest, the governor planned to “dip heavily” into Alaska’s $14 billion in reserves.[2] Merely having reserves is itself fiscally responsible. In California, Gov. Jerry Brown had contributions to a “rainy day” fund as part of his budget even as the University of California clamored for $100 million more in funding—a request the governor rejected as exorbitant.

The fiscal responsibility goes even further in Alaska. The government was diverting only $300 million of the $6.76 billion in oil-tax revenues it expected to collect over the two-year period ending June 30, 2015 toward operating costs—the rest of the revenue going to trust funds, capital projects, and local governments.[3] The continued contributions to the trust funds strike me as particularly responsible, given the political temptation to skimp on them in order to obviate budget cuts of even 5 percent.

In short, Alaskan fiscal responsibility can be characterized as balanced, with budget cuts going along with tapping reserves and continued contributions to trust funds. A return to higher oil prices would signal attention to making up for the reserves’ depletions and adding still more to increase the reserves. In the long term, the reserves could reach a level at which the operating budget is funded entirely by the reserves’ investment revenue. With enough self-discipline to forge ahead with a sustained fiscal responsible policy, governing officials can make taxes obsolete.

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[1] Ana Campoy, Mark Peters, and Erica Phillips, “Energy-Heavy States Get a Crude Awakening,” The Wall Street Journal, January 13, 2015.

[2] Ibid.

[3] Ibid.

Stockholder Activism at DuPont: A Conflict of Interest for Management

In American corporate governance law, the business judgment rule gives management expertise the benefit of the doubt over stockholder proposals. Compared with executive skill, they look rather populist and thus potentially irrational in nature. Nevertheless, with the rule chaffing up against the property-rights foundation of corporate capitalism, the managerial prerogative can be said to be dubious. Indeed, a strict private-property basis justifies displacing the default profit-maximization mission for a given corporation. Alternatively, stockholders may want to use their concentrated, collective wealth for other purposes, such as to alleviate hunger. Once enough profit has been made for the business to be sustained for another year or two, any additional surplus would be spent on food pantries, for example, rather than going out as dividends or being retained by the corporation. Because managerial skill is premised on the profit-maximization goal and its associated strategies, corporate executives intrinsically resist alternatives proposed by stockholders. The managers face a conflict of interest in providing their recommendation for stockholders. Even when the proposal assumes profit-maximization but differs from a current strategy (i.e., adopted by management), a conflict of interest exists should the management seek to provide a recommendation for the stockholders.


The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

Is Dark Trading Ethical?

Dark trading” has a subterranean connotation, as if it were done by slithering snakes in the river Styx. In actuality, the term refers to trading in stocks that is done on computers that are less public than the exchanges. That is to say, the bid-and-ask quotations on a given computer network are known only to participants on it, and not to the traders on the public exchanges. Ethically, the public-private dichotomy is relevant. I submit that it reflects a wider trend in American society.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.