What Would Adam Smith Do?

WSJ.com – What Would Adam Smith Say?
I know, I’m a heretic. Many people ask “What would Jesus do?”, but I ask Adam Smith.

In all seriousness, states have an unhealthy — economically — habit of allowing what economists call rent-seeking. Rent-seeking comes in several forms, as spelled out below, but is generally defined as a private entity seeking favorable treatment from the government. Corporate welfare is a good example; ADM is practically the poster child for rent-seeking at the federal level. Other examples can include requiring a doctor’s prescription to get a blood test at a clinic already licensed by the state, requiring licensing as a mortician to sell burial caskets — that used to be the law in Tennessee — or even requiring state accreditation to practice as a CPA. Generally, rent-seeking doesn’t include legitimate barriers to protect public health, such as requiring a prescription for certain drugs or the licensing of doctors.

Much of public policy rotates around this concept yet few give it much, if any, thought. It’s particularly pernicious at the state level where companies engaged in interstate commerce can face multiple rules while applying the same trade. My state, Mississippi, is a veritable cornucopia of rent-seeking with existing industries, such as agriculture, timber and ship-building, seeking favorable tax treatment and subsidies at the expense of existing taxpayers and would-be future employers.

The Institute for Justice, a group I support financially as well as in spirit, is seeking to overturn the SCOTUS ruling that allows much of this to happen: the Slaughter-House Cases. The Slaughter-House Cases gutted an important part of the 14th amendment known as the “privileges or immunities” clause. This clause sought to stop local governments from preventing newly freed slaves from earning a living, but applied to everyone else as well. This is one of the main reasons I’m such a fan of the 14th amendment: at its fullest it protects economic liberty as well as political liberty from government at every level. The 14th amendment has already been used to apply the Bill of Rights to the states, furthering political liberty, but hasn’t yet affected economic liberty.

I hope that changes, and soon.

In any case, because of the internet, we’re seeing more cases of rent-seeking by the states exposed and hopefully, in time, shot down. Read on for details.

We usually think of free trade as a matter between countries, but the Internet provides a new test for the doctrine right here in America. The more we shop on-line, the more free trade becomes a domestic issue, pitting American producers against American consumers.

The Internet provides consumers a world of information on products and prices. Not all merchants find this wide-open marketplace a comfortable place, however. Those traditional retailers who charge high prices — and continue to do so — are apt to reach for a protectionist crutch. Like the steel makers or textile workers battered by cheaper imports, they seek the heavy hand of government to stifle the new competition. As e-commerce enlarges markets and increases competition, consumers are running into state and local regulations with the same effect as the barriers nations erect at their borders.

Every state imposes some restraint on Internet commerce, although the Progressive Policy Institute finds that Oregon, Utah, Indiana and Louisiana allow their citizens the greatest freedom to buy unhindered on-line. South Carolina and New Mexico are the biggest sinners when it comes to impediments to buying and selling on the Internet.

Georgia requires buyers to purchase contact lenses in person, ostensibly to protect their health but in effect as a boost to in-state eyewear retailers. Oklahoma won’t allow its citizens to be buried in a casket bought out-of-state. South Carolina inhibits Internet mortgage brokers by requiring companies to maintain an in-state office with regular business hours. Thirteen states won’t allow consumers to fill prescriptions over the Internet. Restrictions are common on wine sales, insurance and telemedicine. All 50 states protect car dealers by prohibiting manufacturers from selling direct to consumers over the Internet.

I know, I highlighted the whole thing. It’s that important. These policies pit the politically powerful against everyone else and need to be ended. I think the Interstate Commerce Clause would be enough to do it in some cases, but I don’t know. Is there a lawyer in the house?

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