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Why "Voting With Your Feet" in a Federal System Benefits the Poor More than the Rich:

In my last post, I explained how the right to "vote with your feet" in a federalist system provides strong protection for owners of mobile assets. Owners of such assets can leave a jurisdiction which subjects them to confiscation, excessive taxes, or other harsh treatment. By contrast, owners of immobile assets, such as land, benefit less from interjurisdictional competition under federalism because they can't take these assets with them if they choose to move.

This point has an important implication for one of the standard criticisms of decentralized federalism: the belief that voting with your feet benefits the rich more than the poor. In some ways, the reverse might actually be true, because the poor are less likely to own significant fixed assets than the rich do. Wealthy people who own expensive houses or other fixed assets (e.g. - factories, large estates, etc.) can't move as easily as poorer individuals whose only major assets are their bodies and minds. To be sure, the rich will find it easier to pay the costs of a move. However, these costs are unlikely to be large in the modern world, where cheap interstate transportation is readily available (especially for those who don't have a lot of possessions to take with them). Overall, it should usually be easier for the poor to vote with their feet than for the more affluent.

Empirical evidence supports this conjecture. As I note in Part V of this article, people living in households with an annual income under $15,000 per year are twice as likely to make interstate moves as those in higher income classes. Historically, poor and oppressed groups have often used interstate mobility to their advantage, even in periods when the costs of transportation were much higher than today. The mass migration of African-Americans out of the Jim Crow South during the early 20th century (briefly discussed in the same article) is a particularly striking example.

Obviously, attracting poor people is not as valuable to revenue-seeking states as attracting an equal number of affluent ones. However, so long as the poor people in question are economically productive, a state government still has some incentives to compete for them - especially if bringing them in also attracts capital from investments in firms that might hire them. Thus, despite widespread racism, early 20th century northern state and local governments did make at least some effort to be hospitable to southern black migrants out of these kinds of self-interested motives. Moreover, attracting a large number of lower-income workers might benefit a state's bottom line more than attracting a small number of higher-income ones. The former group might actually pay more taxes in the aggregate (especially in a state where much of the revenue comes from sales taxes, which are not progressive).

Advocates of centralization often claim that it benefits the poor. In some ways this is true; for example, it may be easier for the federal government to redistribute income to the poor than for a state to do so. However, it is important to recognize that centralization also undermines the ability of the poor to help themselves by voting with their feet. If the early 20th century United States had had a unitary policy on race, it would likely have been far closer to that of the Southern states at the time than the northern ones. Thus, millions of southern blacks would have lost the opportunity to better their lot. If the European Union had a common labor policy today, it would likely have strictly regulated labor markets similar to those of France and Germany, which would make it impossible for citizens of the EU's poorer nations to improve their situations by moving to areas with better employment opportunities - as millions have done over the last two decades.

As both the United States and the European Union move towards greater and greater concentration of power in the central government, we should be wary of the possible negative effects on our poorest citizens. While centralized control of redistributive welfare programs might help the poor, central direction of many other policy areas is likely to have the opposite effect in so far as it undermines citizens' ability to vote with their feet. Far from helping the disadvantaged, the trend toward centralization might well cause them more harm than good.

Related Posts (on one page):

  1. Maryland May Use Eminent Domain to Take Over the Preakness:
  2. Why "Voting With Your Feet" in a Federal System Benefits the Poor More than the Rich:
  3. Federalism, the Baltimore Colts, and the Limits of Eminent Domain:
A.:
Freedom's just another word for nothing left to lose, Ilya?
4.4.2009 10:48pm
Splunge:
Somin, you're perfectly correct, but what's the point of the argument here? No one who's not poor gives a damn about the poor, really. They're just pawns and symbols with which one wealthy advocate group beats up another, in search of votes from a third. Like the mentally ill, or the homeless, or "our children."

The only people who really care about the welfare of the poor are the poor, and they're not reading your blog.
4.4.2009 11:05pm
Dreadnaught (www):
Hearsay! Only the Federal government can care for the people. Just look at D.C., it is the greatest city in America and the Federal government has almost absolute control over it. Wait, it may be the worst. Viva states!
4.4.2009 11:25pm
VisitingMark (mail):

Interesting that Southern merits capitalization but northern doesn't, no?
4.4.2009 11:32pm
Dreadnaught (www):
Remember, President Obama will still allow "harsh interrogations" through a classified loophole.
4.4.2009 11:40pm
MCM (mail):
By contrast, owners of immobile assets, such as land, benefit less from interjurisdictional competition under federalism because they can't take these assets with them if they choose to move.


But land is still alienable... it's not like you can't sell land in one jurisdiction and use the proceeds to buy land in another. Certainly all land is unique, and perhaps the rich want to keep a specific tracts in the family. But it's all a question of how much it's worth to them.

However, these costs are unlikely to be large in the modern world, where cheap interstate transportation is readily available (especially for those who don't have a lot of possessions to take with them). Overall, it should usually be easier for the poor to vote with their feet than for the more affluent.


I don't think you gave this more than cursory thought. Try and total up the costs of moving to a new state. The transportation cost is the least of it. There is a huge time investment required to find a place to live, find a new job, either move your belongings or sell them and buy new ones, and to physically move. Poor people have little or no assets and generally can't afford to not work for the time this all takes.
4.5.2009 12:34am
einhverfr (mail) (www):
Interesting points and much food for thought. Thanks.

I think it is true that economic encumbrances (jobs, land, etc) do restrict mobility, and that these are hardly limited to immobile property.
4.5.2009 1:18am
LibertyCowboy:
I guess I have mixed thoughts on this. I think competiton helps both rich and poor about equally.

While it may be hard to sell a factory "as is" in a high tax area, it is often possible to move all of the equipment of any value, recycle the building materials, and eat the marginal cost of the industrial real estate (which often isn't particularly valuable, especially if polluted). It may also be possible to get incentives from the new community to relocate. Probably the biggest problem is getting the staff to relocate, so many firms simply limit expansion to the more favorable areas and let attrition take its course.

In practice, low-tax areas have lower costs of living and ditching a large estate would be fiscally rewarding. The buyers of such estates seem not to care about money at all.

Competition from low-tax jurisdictions help keep costs in check even in socalist areas. At least in theory, high tax rates make land less valuable, which would check total ad volerm taxes.

I don't believe redistributive programs benefit the poor. If taxes on the wealthy increase, the wealth charge more for whatever product made them rich, and the poor pay that tax indirectly.

MCM, I've moved several times. It took less than a day to find a place and less than a week to move my stuff (including packing, driving the U-Haul, and unpacking). Some poor may be unemployed, and those that are employed usually get some paid time off. Either way they can double their standard of living, and for that, one makes time.
4.5.2009 1:44am
tvk:
I think it depends on how you define "rich," because what you are describing as "rich" seem to me to be middle-class homeowners. The truly poor have no fixed assets. The really rich have very mobile assets (e.g. cash, stocks, etc.) as a large part of their asset portfolio. The middle have a single home that cannot be easily moved as their main asset. I thought it was the liberals who classified people making $150,000 a year as rich.
4.5.2009 4:11am
Visitor Again:
I thought it was the liberals who classified people making $150,000 a year as rich.

The world's population is 6,706,993,152 (July 2008 est). Subtracting a couple of billion for the very young and others who might have no notion of what rich is, that would leave at least four billion people who classify people making $150,000 a year as rich. I didn't know the world had so many liberals.

And even confining it to the USA, population 303,824,640 (July 2008 est.), that would make 200 million or so who make the same classification.

You ought to get out more, mix with the hoi polloi. It's only those making $150,000 or more a year or who have expectations of making that much who do not classify this group as rich.
4.5.2009 4:58am
Marian (mail):
There is an old saying that a rich person is a person which lives comfortably on passive income. In my view, an overworked surgeon or manager who earns 200 000 USD by unnerving work yearly is much less rich than a rentier who gets half of that amount from passive income.

I do not think that the Visitor's global argument is particularly strong. Living expenses vary a lot across the globe. You can get reasonably good food for your entire family for a single day on an Iranian or India market for 5 Eur. Some countries are blessed with temperate weather which does not force you to spend much money on energy for heating or cooling (think Italy or Ireland). Prices of real estate also vary wildly. You can buy a nice house on the Turkish riviera for 50 000 USD. The same house here in Prague would cost about 200 000 USD. (Given the level of wages and taxation here, only the upper middle class can afford buying a new house here, and they will pay crippling mortgage for 30 to 40 years). In London, you could end with price tag about 700 000 USD.

Now try comparing the well-being of people in those countries by their yearly income...
4.5.2009 7:30am
Harry Eagar (mail):
This seems to stand common sense on its head. That the rich stay put in the circumstances in which they became rich does not seem to require explanation.
4.5.2009 8:02am
Fallacy:

Moreover, attracting a large number of lower-income workers might benefit a state's bottom line more than attracting a small number of higher-income ones.

This assumes that the impact to the bottom line from a citizen is solely their contribution of taxes paid. You forget about the costs created, which if the user of services in excess of their taxes paid enters the state, that is a negative direct impact on the "bottom line." A low wage earner with 1 school-aged kid is a cost-center, not a profit-center, to the state.

In addition, the idea that a poor person will enrich state coffers more than a rich person in a state with a "non-progressive" sales tax and no income tax is patently absurd. Sales tax collected is directly proportional to money spent, which is also directly proportion to money earned. Your logic requires a rich person who spends at retail less than a poor person. I'm laughing my ass off at that one.
4.5.2009 10:02am
Justin (mail):
Not sure I agree with your point. Those people who own mobile assets are, large and by, a subsection of the population that OWNS ASSETS, and they're predominantly rich. Given (as expressed above by others) that land and business enterprises are alienable, the whole assets approach to "voting with your feet" still shows that the benefactors of the system as CURRENTLY implemented are predominantly rich, mainly due to the better bargaining power that they have against local government than they would against a centralized government.
4.5.2009 10:11am
MarkField (mail):

If the early 20th century United States had had a unitary policy on race, it would likely have been far closer to that of the Southern states at the time than the northern ones. Thus, millions of southern blacks would have lost the opportunity to better their lot.


Of course, if national policy had ameliorated the lot of Southern blacks even a little bit, that would have been a huge benefit.


There is an old saying that a rich person is a person which lives comfortably on passive income. In my view, an overworked surgeon or manager who earns 200 000 USD by unnerving work yearly is much less rich than a rentier who gets half of that amount from passive income.


Agreed.


Living expenses vary a lot across the globe. You can get reasonably good food for your entire family for a single day on an Iranian or India market for 5 Eur. Some countries are blessed with temperate weather which does not force you to spend much money on energy for heating or cooling (think Italy or Ireland). Prices of real estate also vary wildly. You can buy a nice house on the Turkish riviera for 50 000 USD. The same house here in Prague would cost about 200 000 USD. (Given the level of wages and taxation here, only the upper middle class can afford buying a new house here, and they will pay crippling mortgage for 30 to 40 years). In London, you could end with price tag about 700 000 USD.


While all this is true, I suspect an income of $150,000/year would be very high on the global scale even after making such adjustments. VA's point may have overstated the numbers by a little, but probably not by much.
4.5.2009 10:13am
MarkField (mail):

This seems to stand common sense on its head. That the rich stay put in the circumstances in which they became rich does not seem to require explanation.


Exactly right.
4.5.2009 10:14am
corneille1640 (mail):
I'll just repeat MCM's point about how it's not always easy to find work or a place to live. It depends on where you move to.

I've never been what I consider to be poor. But at least in my (admittedly anecdotal) experience, landlords (both personal and corporate) require credit checks and proof of having been employed for a fairly long time. One time, I was denied an apartment on the grounds that I had been employed at my then current job for only two months, despite the fact that I had a credit score in the high 700s, no debt whatsoever (but a couple credit cards on record so that I had a credit history) and about $4,000 or so saved up in the bank that by itself would have been enough by itself to pay the first 6 months or so of rent. Fortunately, I lived with my parents at the time and shortly thereafter did find a place that allowed me to rent anyway.

My point is, however, that if I had had no connections and no job, it would have been much harder to establish myself in that city. I admit it would not have been impossible, and if I had been willing to compromise and lower my sites on where I wanted to live, it might have been easier. But easy access to the interstate highway system and the relatively "low" cost of moving (which still can easily exceed $1,000 dollars....a lot of money to a poor person).

I would just add that one is still taking a gamble by voting with one's feet. It is not always clear that the place one is relocating too is as desirable as it might seem. Maybe the place is free of high property taxes, but it has high sales taxes, for example. Poor people are much more likely to have imperfect information when deciding where to move to.
4.5.2009 11:52am
corneille1640 (mail):

As both the United States and the European Union move towards greater and greater concentration of power in the central government, we should be wary of the possible negative effects on our poorest citizens.

At least in the case of the EU, isn't one result of the "greater and greater concentration of power in the central government" to make it easier for people to "vote with their feet" by making it easier citizens of member countries to find job and keep jobs in other member countries?
4.5.2009 11:55am
MarkField (mail):

At least in the case of the EU, isn't one result of the "greater and greater concentration of power in the central government" to make it easier for people to "vote with their feet" by making it easier citizens of member countries to find job and keep jobs in other member countries?


Of course. In fact, it's centralization which makes greater movement possible. People are most likely to move somewhere which feels culturally similar. A common language, common currency, a common legal system, and common cultural values all make moving easier. Decentralization therefore impedes the very characteristics which make voting with one's feet more likely.
4.5.2009 12:09pm
trad and anon (mail):
I thought it was the liberals who classified people making $150,000 a year as rich.
$150,000 is approximately the 95th percentile of household income (really it's more like $160,000, but you get the point), and three times the median family income. The fact that such people consider themselves "middle-class" is really a reflection on how oblivious they are to the way most people live. There's just no way someone in the 95th percentile is in the middle of anything, especially when the gap between them and the real middle class is a factor of three.

I can understand the reluctance to calling such people "rich" when there are people making ten times as much as them, and people making ten times as much as them, and people making ten times as much as them. I think what we really need is a term between "upper-middle class" (which is really something in the higher five figures) and "rich" to describe such people. I prefer "upper-class."
4.5.2009 4:11pm
trad and anon (mail):
This point has an important implication for one of the standard criticisms of decentralized federalism: the belief that voting with your feet benefits the rich more than the poor. In some ways, the reverse might actually be true, because the poor are less likely to own significant fixed assets than the rich do. Wealthy people who own expensive houses or other fixed assets (e.g. - factories, large estates, etc.) can't move as easily as poorer individuals whose only major assets are their bodies and minds. To be sure, the rich will find it easier to pay the costs of a move. However, these costs are unlikely to be large in the modern world, where cheap interstate transportation is readily available (especially for those who don't have a lot of possessions to take with them). Overall, it should usually be easier for the poor to vote with their feet than for the more affluent.
I think you're overestimating the costs of a move for the rich and underestimating the costs for the poor. Houses and estates are alienable; they may take a while to sell, but the well-to-do have access to savings and financing to tide them over while the old house is still selling. Your point about factories is baffling—factory owners are rarely managing operations on site, and the bank account the income can be accessed in Honolulu as easily as in Boston. Moreover, the well-off are likely to have connections that make it easy to find a new job in their new location—in fact, they can probably find a new job before they move.

Conversely, poor people may well have little furniture to transfer, but they must forfeit their deposit and come up with another one (difficult for people with few savings). They are much, much less likely to have the high-quality connections of the well-off and cannot afford to fly back and forth for job interviews before moving, so they must often move without a job in their new location, which greatly increases the risk of a move.
4.5.2009 4:37pm
Roguestage:
I'll second the points that several here have made - this post essentially wishes away any costs of moving for the poor, and magnifies costs of moving for the rich. The reality is far different.

This, in particular, deserves further comment:


I've never been what I consider to be poor. But at least in my (admittedly anecdotal) experience, landlords (both personal and corporate) require credit checks and proof of having been employed for a fairly long time. One time, I was denied an apartment on the grounds that I had been employed at my then current job for only two months, despite the fact that I had a credit score in the high 700s, no debt whatsoever (but a couple credit cards on record so that I had a credit history) and about $4,000 or so saved up in the bank that by itself would have been enough by itself to pay the first 6 months or so of rent. Fortunately, I lived with my parents at the time and shortly thereafter did find a place that allowed me to rent anyway.

My point is, however, that if I had had no connections and no job, it would have been much harder to establish myself in that city. I admit it would not have been impossible, and if I had been willing to compromise and lower my sites on where I wanted to live, it might have been easier. But easy access to the interstate highway system and the relatively "low" cost of moving (which still can easily exceed $1,000 dollars....a lot of money to a poor person).


Remember that the overwhelming majority of the poor rent, and that many rentals require not only one or two months' rent in advance, but a month's rent as a security deposit. That security deposit is supposed to be returned at the end of the lease, but protections for it are often scant and usually (in my experience) require resort to small claims court. Many of the working poor in this country have neither the time nor the legal expertise to (a) take a day off to take their landlord to court over a security deposit or (b) make the documentation in advance that is often required to prove their case, such as photos of the condition of the apartment on the move-in and move-out days. It may seem insignificant to those of us well-off enough to be posting on this blog, but even changing apartments usually means eating a month's rent, to say nothing of the other costs (transportation, days out of work, etc.).
4.5.2009 6:40pm
Roguestage:
One other thing:


Empirical evidence supports this conjecture. As I note in Part V of this article, people living in households with an annual income under $15,000 per year are twice as likely to make interstate moves as those in higher income classes. Historically, poor and oppressed groups have often used interstate mobility to their advantage, even in periods when the costs of transportation were much higher than today. The mass migration of African-Americans out of the Jim Crow South during the early 20th century (briefly discussed in the same article) is a particularly striking example.


This paragraph makes an unwarranted assumption. The fact that those with little income are more likely to make interstate moves does not mean they benefited by making such moves. Some people move because they get a better job elsewhere; some people move because they are evicted and have to start living in their car. Some people move because welfare benefits are higher in some states, but even that does not necessarily translate to benefits, since welfare is generally keyed to cost-of-living (higher welfare checks come when you have to spend more on food or rent).

In short, the propensity of the very poor to move may be the result of a perceived (or hoped-for) benefit rather than a real one. It is possible that the empirical evidence cited supports the proposition for which it is used; but I think that possibility is dubious at best.
4.5.2009 6:47pm
Harry Eagar (mail):
Since the usual way the rich get rich is to appropriate, one way or another, the work income of the not-rich, the rich will move to where they can do that. Except that, as LibertyCowboy points out, in a complex economy, the rich can do that by remote contyrol, sending work to China, appropriating an even greater proportion of the work surplus, and still living themselves where the water is safe to drink.

Typical, though, to aee people worrying about the burdens of the rich.
4.5.2009 8:14pm
A.:

Since the usual way the rich get rich is to appropriate, one way or another, the work income of the not-rich, the rich . . .

Wow, an honest-to-god Marxist! I've never seen one of those here before!
4.5.2009 9:37pm
kentuckyliz (mail):
Since the Clinton welfare reform, those poor who have not been able to get on Social Security Disability (back pain or crazy check) have to move to the next state to reset the clock on their 5 year lifetime limit on TANF. There is no national checking, only state. I live where multiple states interlace--8 states within an 8 hour drive. Poor people move back and forth along this route/series of states.

Poor people are more reliant on family/friend networks in a barter system. They are often better off staying with their support network than moving away from it. It may be a matter of survival.

When I started reading this, I thought you were going to say that poor people can move their trailers but rich people couldn't move their stickbuilt estates.
4.5.2009 9:40pm
Harry Eagar (mail):
OK,I give up, A. How do you think the rich got rich? Stayed up late plowing by moonlight?
4.6.2009 8:57am
MarkField (mail):

Wow, an honest-to-god Marxist! I've never seen one of those here before!


And here I thought all the Obama supporters who comment here were Marxist supporters of his socialist policies.
4.6.2009 10:45am
A.C.:
How much of this is really about young vs. old? Young people, whether students or people with their first post-high school jobs, don't earn much. They also have fewer things to move if they do move, and more of a wanderlust to begin with. At age 24, I did a 600-mile move with everything I owned in the back of a Honda Civic hatchback. The total cost was the gasoline and the truck stop food I ate along the way. And I did it mostly just for the heck of it.

Older people tend to have acquired some seniority doing SOMETHING, not to mention some skills that lead to higher earnings. They also have families, community ties, perhaps real estate, and furniture that doesn't pack flat. All this makes moving a lot more complicated.

As for people earning $150K, WHERE? In most of the country, that makes you rich. And in most of the country, you don't find many of those jobs. In the big cities where $150K jobs are concentrated, that salary puts you at about the level a $75K or $80K job would put you in a smaller town. Still nice, don't get me wrong, but not the same thing at all. People talk past each other if they don't keep that in mind.
4.6.2009 11:12am
hazemyth:
How mobile are the poor? They don't have competitive job skills. They can't afford the expenses of relocation. They don't have access to credit.

This post seems kind of fatuous to me.
4.6.2009 1:33pm
Harry Eagar (mail):
The desperately, hopelessly poor are pretty immobile, but a short step up they can move easily enough. The $500, uninsured clunker will get you out of the county you're in, and wherever it breaks down, at least you won't be worse off than you were.

40 years ago, a guy in Chicago had an entrepreneurial answer for even the desperately poor: He bought a new Cadillac and offered sharecroppers in the Mississippi Delta a ride to Chicago. His fee: Their first welfare check.
4.6.2009 6:57pm
Harry Eagar (mail):
The desperately, hopelessly poor are pretty immobile, but a short step up they can move easily enough. The $500, uninsured clunker will get you out of the county you're in, and wherever it breaks down, at least you won't be worse off than you were.

40 years ago, a guy in Chicago had an entrepreneurial answer for even the desperately poor: He bought a new Cadillac and offered sharecroppers in the Mississippi Delta a ride to Chicago. His fee: Their first welfare check.
4.6.2009 6:57pm
einhverfr (mail) (www):
A:

Napolean Hill had a similar point about using other people's work to get rich. I don't think it is a Marxist point of view.

It seems to me to be an accurate point of view AND a legitimate strategy.
4.7.2009 9:05pm
einhverfr (mail) (www):
Harry Eager:

The desperately, hopelessly poor are pretty immobile, but a short step up they can move easily enough.


But freight trains improve that mobility a lot. Also I would be willing to bet that if you had to you could get enough money pan handling for a bus ticket.
4.7.2009 9:06pm
einhverfr (mail) (www):
After giving this some thought....

I agree with Prof. Somin on the basic argument but disagree on the specifics. Certainly rich folk are more likely to take a loss in moving but the immovable property argument is IMO a fairly weak one. Rich folk are also in a position to absorb such a loss if the long-term move is profitable too.

I think the bigger issue at least for middle-income folk is that entanglements are the things that make it hard to move. You have to actually find a job somewhere far away before you move if you already have a stable income. While this is easier than it used to be, this is not trivial. Then of course there are non-economic entanglements, like kids in school, which can further complicate efforts to move. Finally there is just a sense of inertia. If one's lot isn't so bad, why move to try to better it?

I think that as folk go up the economic scale and shift income from active forms of income to passive forms of income, they inherently become more mobile. However, at the same time, opportunities for entanglements become more prevalent as well. These entanglements can make it harder to move.

The folks who are LEAST mobile are small business owners such as myself. "What about my customers? How long will it take to rebuild?" are valid questions which make mobility very much of a problem.
4.8.2009 2:13pm

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