COLLECTIVE ACTION FEDERALISM: A GENERAL THEORY OF ARTICLE I, SECTION 8 Robert D. Cooter* & Neil S. Siegel** The Framers of the United States Constitution wrote Article I, Section 8 in order to address some daunting collective action problemsfacing the young na- tion. They especially wanted to protect the states from military warfare by fo- reigners andfrom commercial warfare against one another. The states acted in- dividually when they needed to act collectively, and Congress lacked power under the Articles of Confederation to address these problems. Section 8 thus au- thorized Congress to promote the "general Welfare" of the United States by tack- ling many collective actionproblems that the states could not solve on their own. Subsequent interpretationsof Section 8, both outside and inside the courts, often have focused on the presence or absence of collective action problems in- volving multiple states-but not always. For example, the Supreme Court of the United States, in trying to distinguish the "truly national" from the "truly local" in the context of the Commerce Clause, United States v. Morrison, 529 U.S. 598, * Herman Selvin Professor of Law, University of California at Berkeley. ** Professor of Law and Political Science, Duke University School of Law. I dedicate this Article to the loving memory of my mother, Sharon Ruth Siegel, for giving me life-and a whole lot more. For illuminating comments, we thank Jack Balkin, Sara Beale, Stuart Benjamin, Joseph Blocher, Curtis Bradley, Geoffrey Brennan, Samuel Buell, Erwin Chemerinsky, Jesse Cho- per, Eric Freedman, Philip Frickey, Barry Friedman, Jamal Greene, Daniel Greenwood, Grant Hayden, Laurence Helfer, Don Herzog, Roderick Hills, Donald Horowitz, John Inazu, Margaret Lemos, Anne Joseph O'Connell, Sanford Kadish, Richard Lazarus, Margaret Le- mos, Paul Mishkin, Julian Mortenson, Michael Munger, Richard Pildes, Eric Posner, Robert Post, H. Jefferson Powell, Richard Primus, Jedediah Purdy, Donald Regan, Barak Richman, Daniel Rodriguez, Christopher Schroeder, Steven Siegel, Norman Silber, Maxwell Stearns, Matthew Stephenson, Eric Talley, Adrian Vermeule, Mark Weiner, Barry Weingast, Jona- than Wiener, John Yoo, and Ernest Young. We also thank participants at Boalt Hall's Confe- rence on Constitutional Law and Economics in August 2005, Boalt Hall's Law and Econom- ics Workshop in October 2006, Duke Law School's Faculty Workshop in March 2006, the Annual Meeting of the American Law and Economics Association in May 2009, the Univer- sity of Chicago Law School's Conference on Comparative Constitutional Design in October 2009, Duke University's Law and Social Science Workshop in January 2010, Cardozo Law School's Faculty Workshop in March 2010, Hofstra Law School's Faculty Workshop in April 2010, and the University of Michigan Law School's Constitutional Theory Workshop in November 2010. We are grateful to Natalie Bedoya, Kory Wilmot, and, especially, M. Rhead Enion for able research assistance. 115 HeinOnline -- 63 Stan. L. Rev. 115 2010-2011 116 STANFORD LAW REVIEW [Vol. 63:115 617-18 (2000), has diferentiated "economic" activity, which Congress may re- gulate,from "noneconomic" activity, which Congress may not regulate. A federal constitution ideally gives the central and state governments the power to do what each does best. But economic activity does not generally cause collective action problems among the states, and noneconomic activity is not generally free from collective action problems. Consequently, Congress is not generally better at regulating economic activity, and the states are not generally better at regulating noneconomic activity. The distinction between economic and noneconomic activity seems mostly irrelevantto the problems offederalism. We propose a betterfoundation for American federalism in Section 8. Our theory distinguishesactivities that pose collective action problemsfrom those that do not. This approachflows directly from the relative advantages of the federal government and the states. We show that Section 8 mostly concerns collective ac- tion problems created by interstate externalities and national markets. We con- clude that Section 8 authorizes Congress to tax, spend, and regulate to solve these collective action problems. Collective action federalism finds that the limits and expanse of congres- sionalpower in Section 8 turn on the diference between individual and collective action by the states. The theory uses this distinction to differentiate interstate commerce from intrastate commerce, not the economic/noneconomic distinc- tion. Our distinction best explains why Congress may not ordinarilyuse its com- merce power to regulate such crimes as assault or gun possession in schools. Collective action federalism also identifies a constitutional "hook" for Congress to regulate multi-state problems of collective action that may not in- volve commerce: Clause I of Section 8 authorizes some forms of regulation of noneconomic harms that spill over state boundaries,such as contagious diseases and certain kinds of environmentalpollution. INTRODUCTION...........................................................117 I. PAST INTERPRETATIONS OF ARTICLE I, SECTION 8 ........... ........ 120 A. Section 8 Outside the Courts................... ............. 121 1. Preratification.......................................121 2. Postratification.......................................125 B. Section 8 Inside the Courts.................. ............... 126 1. The General Welfare Clause............................126 2. The Commerce Clause ........... ........... 128 II. THEORY OF THE GENERAL WELFARE .................................... 135 A. Externalities...........................................135 B. InternalizationPrinciple..................................137 C. FederalCoase Theorem...................................139 D. PoliticalLogic of U.S. Federalism............................144 1. ANALYTICAL CATEGORIES OF ARTICLE I, SECTION 8.................... 144 A. Analysis ofSection 8...................................... 145 B. Collective Action Federalism and Other Parts of the Constitution............151 C. Collective Action Federalism and ConstitutionalDisagreement.............152 D. Collective Action Federalism and Theories of Interpretation.............. 155 IV. EXPLAINING (OR IMPROVING) CONTEMPORARY UNDERSTANDINGS................ 159 A. The Commerce Clause.................................... 159 B. Dormant Commerce Clause ...................................... 166 HeinOnline -- 63 Stan. L. Rev. 116 2010-2011 December 2010] COLLECTIVE ACTION FEDERALISM 117 C. The General Welfare Clause .........................................168 1. The purposesfor which Congress may tax and spend.........................168 2. Regulation under Clause 1?............. ...................... 170 3. When to avoid avoidance ......................... ...... 175 V. EVALUATING CONGRESSIONAL JUDGMENTS ABOUT COLLECTIVE ACTION PROBLEMS....................................... .......... 180 CONCLUSION ................................................ 183 INTRODUCTION The Federal system was created with the intention of combining the different advantages which result from the magnitude and the littleness of nations .... Under the Articles of Confederation, Congress lacked the power to protect the states from military warfare waged by foreigners and from commercial war- fare waged by one another. The states proved unable to solve these diffidulties on their own. They acted individually when they needed to act collectively, and the Framers of the United States Constitution concluded that the states cannot reliably achieve an end when doing so requires two or more of them to coope- rate. The solution lay with the establishment of a more comprehensive unit of government-a national government with the authority to tax, raise and support a military, regulate interstate and international commerce, and act directly on individuals. The Constitutional Convention thus instructed the midsummer Committee of Detail that Congress would possess the power "to legislate in all Cases for the general Interests of the Union, and also in those Cases to which the States are separately incompetent, or in which the Harmony of the United States may be interrupted by the Exercise of individual Legislation." 2 The Committee subsequently produced Article I, Section 8. The Framers lacked the tools and language of modem social science, but they knew a collective action problem when they saw it. When activities spilled over from one state to another, the Framers recognized that the actions of indi- vidually rational states produced irrational results for the nation as a whole- the definition of a collective action problem. The federal government is the smallest unit that internalizes these spillovers. By internalizing the effects, the federal government is more likely than the states to solve the problem of inter- state spillovers. So Article I, Section 8 of the new Constitution gave Congress additional powers to address collective action problems. Interpretations of Article I, Section 8 since the Founding have not always focused on collective action problems involving multiple states. Regardless of collective action problems, many presidents and members of Congress I. I ALEXIS DE TOCQUEVILLE, DEMOCRACY IN AMERICA 206 (Francis Bowen ed., Henry Reeve trans., Cambridge, Sever & Francis 1862). 2. 2 THE RECORDS OF THE FEDERAL CONVENTION OF 1787, at 131-32 (Max Farrand ed., rev. ed. 1966). HeinOnline -- 63 Stan. L.