If your state is fucking up, you have the option to vote those bastards out. Or you can move to a state that is doing a good job. Populations would shift based on the solvency of the state governments .. rewarding good governing.
Toxic, I don't like the idea of states being treated as consumer products on the free-market. People have family, community, and economic ties that don't allow them to simply move to different states based on prevailing market conditions. It's not like buying a bag of chips or a pair of jeans. And states are full of people who simply can't move on their own--children, the elderly, the mentally challenged, physically disabled--are the most reliant on services that you would leave solely to individual states: education, health care, social security, etc. They can't simply move when they're receiving a shitty education or poor health care.
States and regions are often prone to unique natural, social, or economic disaster that are too severe for them to handle on their own. Having people simply flooding out of those states when trouble hits might exasperate the problems. For example, by shrinking an already insufficient tax base.
This doesn't mean that states should be homogeneous, but they should each receive a minimum amount of funding allowing them to provide a certain level of services. Canada, for example, has equalization payment, ensuring that provinces get a certain amount of funding. (In practice, however, it is highly political, with a great deal of pandering to Quebec.)
