The rise of the so-called Ubertarians, who seek to break down taxi cartels to permit Uber and other ride-sharing services to compete, and the Telsarchists, who oppose regulations preventing the direct sale of Tesla vehicles outside the car dealership cartel, are evidence of the intuitive appeal of public choice theory, even to modern-day progressives who otherwise favor broad deference to the government’s regulatory arm. These “nakedly anticompetitive regulations” are visible by all for what they are.
But would a law banning the sale of Teslas vehicles fail any sort of judicial review, of the sort premised on rooting out anticompetitive special interest law, obtained through rent-seeking. This approach resembles what has been deemed “public choice constitutionalism.”
For example, recently New Jersey, at the lobbying of auto dealers, enacted a regulation that would ban the direct sale of vehicles in the Garden State. Though the law was couched in terms of consumer protection, the clear and unmistakable intent of the law was to punish one company—Tesla, which sells and ships cars directly to consumers. Indeed, a group of 70 economists submitted a letter to New Jersey Governor Chris Christie, opposing the regulation. In a curious way, the letter tracks closely this school of the constitutional scrutiny inquiry. The economists stress that the law lacks any rational basis, as there is “no justification on any rational economic or public policy grounds for such a restraint of commerce.” The economists even attempted to take up the mantle of the rational basis test’s requirement to negative every conceivable rationale for the law—“ we have not heard a single argument for a direct distribution ban that makes any sense.” There truly is no rational basis—or at least not one ground in fiction. Instead, the only purpose of the law is “protectionism for auto dealers, pure and simple.” The costs to Tesla are concentrated, the benefits to the incumbent auto dealers are concentrated, and the costs to consumers are dispersed: “Rather, the upshot of the regulation is to reduce competition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers.”
As it turns out General Motors (who stands to be harmed by Tesla’s business model) sent a letter to the Governor of Ohio urging him to not grant an exemption to Tesla from the state’s vehicle sales laws. The letter, quite candidate, noted that a change in the law would give Tesla a “distinct competitive advantage” and would create a “significant disparate impact” on competition in selling cars. But, rather than seeking similar deregulations for all players GM seeks to erect the barriers to keep out the smaller players. What’s good for GM is almost certainly not good for America.
Though, as usual Tesla’s “apparent goal isn’t deregulating the auto retail business so much as merely browbeating a few states into carving out friendly exceptions for Tesla.”
These are perfectly valid findings for economists, trained in public choice theory to make. Yet, this is the precise inquiry that public choice constitutionalism would call for. Much of this, of course can be common sense, in the easy case at least. But in tougher, Baptist-and-Bootlegger situations, the answer may not be so clear. Under public choice constitutionalism, would a due process challenge to this New Jersey law be successful? It meets all the hallmarks of purely protectionist laws, with no conceivable benefit to consumer safety, and it aggrandizes benefits for one politically powerful group. This regulation should be dead on arrival.
I’ll have more on public choice constitutionalism in a review of Clark Neily’s new book, Terms of Engagement.