Does Federalism Stifle Entrepreneurship?

August 18th, 2011

At ThinkProgress (yes I read it daily), Matt Yglesias queries whether federalism, which permits 50 different states to have 50 different sets of regulations for something as simple as optical dispensing, can frustrate entrepreneurs.

Warby Parker founder Neil Blumenthal makes a very interesting point about public policy and entrepreneurshipwhen he observes that “The rules of optical dispensing vary from state to state. Dispensing eyeglasses is not that complicated and even if it were complicated, there should be uniform rules.”

People talk a lot in Washington about “regulation” rarely with reference to specific regulations or specific problems. And perhaps one of the most neglected problems concerns the information costs of regulation. Even a very sensible rule can be quite burdensome on a businessman if it’s difficult to find out what the rule says. If you have 50 slight variations of the same rule, then even if all 50 of the rules are totally reasonable, you’ve now created a giant burden to anyone looking to scale his business up or (like Warby Parker) innovate in the field of national distribution. Rules that can look totally innocuous individually can collectively become a problem to anyone who’s not a well-established incumbent. Improved transportation and information technology mean that many more lines of business can be “national” in scope than has traditionally been the case. The sensible response would be to shift more of these regulatory functions up to the federal level

He makes a very good point. Lawyers licensed to practice law in State A cannot practice law in State B without going through another rigorous cartelized entrance exam.

But the problem is not federalism. No, that is merely a byproduct that exacerbates the issue. The problem is the failure to recognize that the right to earn a living (entrepreneurship) exists, and that laws that frustrate that right should be limited. Funny Matt mentions dispensing glasses, as the highwater mark of judicial deference to economic laws was Williamson v. Lee Optical, a case where the Court basically said any law the state passes is constitutional.

If the right to earn an honest living was accorded its due deference, the problems of federalism would be minimized becuase, well, there would be fewer types of laws that could pass.

Laws limiting the ability of girl scouts to sell cookies, kids to have lemonade stands touch on this right.

Nice try think progress. You almost gone one by the goalie.