The lawsuits challenging Obamacare's1 individual mandate2 have exposed a riftin federalism theory. On one side of the divide is a view that the national government ought to intervene-and ought to be constitutionally permitted to intervene-whenever the states are "separately incompetent"3 to regulate a particular subject.4 According to this view, the primary purpose of the Constitution's enumeration of national powers is to authorize Congress to fix collective action problems among the states.5 Borrowing from Robert Cooter and Neil Siegel's article of the same name, I refer to this view as "collective action federalism."6 On the other side of the divide is a view that federalism exists for reasons other than efficiency of regulation and particularly that the Founders created the federal structure for the protection of individual liberty.7 According to this view, there is inherent value to state power that ought to be preserved against national encroachments.8 I refer to this view as "libertarian federalism." In the Obamacare litigation, believers in collective action federalism generally support the individual mandate while believers in libertarian federalism generally oppose it.9
This Article presents a standard cost-benefit theory to bridge the gap-to reconcile the two competing theories of federalism. The cost-benefit theory is premised on two basic views. First, federalism exists both to promote regulatory efficiency and to protect individual liberty. That is, collective action federalism and libertarian federalism both rest on sound foundations. Second, regulatory efficiency always counsels in favor of national authority while individual liberty always counsels in favor of state authority. Either collective action federalism or libertarian federalism, if followed to its natural conclusion, would do away with federalism altogether. Assuming, then, that federalism is worth preserving and that both views rest on good foundations, the Supreme Court ought not to adopt one view to the exclusion of the other.
Fortunately, it is quite possible to follow both views simultaneously by optimizing the balance between the two. Under cost-benefit federalism, the inquiry ought to weigh the efficiency losses of state action against the liberty losses of national action and ought to choose the approach that maximizes the value-the benefits minus the costs-in the distribution of governmental authority. That is, if the libertarian costs of federalization outweigh its efficiency benefits, then Congress ought to leave regulation to the states. But if the efficiency benefits outweigh the libertarian costs, then Congress ought to regulate. Unlike the collective action and libertarian theories, the cost-benefit approach allows for some generalizable distinctions in the kinds of regimes that should fall to Congress and the kinds that should fall to the states. Cost-benefit federalism does not argue monotonically for national or state control. Indeed, the cost-benefit theory suggests a federalism line that roughly tracks the current doctrinal distinction: the economic/noneconomic distinction in the Supreme Court's Commerce Clause cases.10
That said, the simple account of the cost-benefit theory is too simple, for two reasons. First, not all regulation is monopolistically state or national; many regulatory regimes involve both levels of government.11 But while national action can preserve state advantages, state action has a much harder time capturing national advantages.12 Congress can (and frequently does) write national legislation that preserves states' ability to protect individual liberty (through either "cooperative federalism" programs or narrowly preemptive national laws), but states rarely surmount their collective action problems to engage in more-efficient coordinated efforts.13 It might be quite rational, therefore, for courts and commentators to take a less skeptical view of national claims to action than of state claims to action. …