John Hood: States can limit regulatory damage

RALEIGH — Shortly after taking office, President Joe Biden began revving up the federal government’s regulatory engine. He’s already run over the Keystone Pipeline. We can expect a pileup of other rules that will increase the cost of energy, food, and many other goods and services across our economy.

Fortunately, there’s something North Carolina lawmakers can do to lessen the damage. They can ramp up their own efforts to reform state regulation and promote economic freedom more generally.

No, I’m not saying state governments can nullify federal laws. But the same households and businesses that the Biden administration is about to sock with costly federal rules are also subject to state taxes and regulation. As a new empirical study shows, states that embrace economic freedom tend to suffer less when Washington’s regulators go too far.

David Lucas of Syracuse University and Christopher Boudreaux of Florida Atlantic University used 12 years of data on rulemaking, economic freedom, and job creation to explore the relationship between state and federal policy choices.

“Because state-level institutions characterized by low tax and labor freedom are unlikely to buffer the costs associated with compliance and regulatory capture, national regulation should negatively affect net job creation in these regions,” they predicted. “By contrast, regions with high tax and labor freedom are likely to buffer the costs of regulation and yield more net job creation.”

The results of the study Lucas and Boudreaux conducted, published last year in the academic journal Research Policy, were in line with their prediction. In states such as Florida, Texas, and North Carolina with better-than-average freedom scores, the economic burden of federal regulation was lower or even fully offset. In states such as New York, New Mexico, and California with worse-than-average freedom scores, federal rules produced lower net job creation.

So, in addition to arguing against unwise Biden administration policies, North Carolina leaders should use the state tools they have at their disposal to promote entrepreneurship and job creation, especially with respect to the labor market.

We are a right-to-work state, meaning we don’t require our workers to join labor cartels as a condition for getting a job. Our legislature has also wisely chosen not to set wage floors higher than the national floor. After all, mandating that employees receive $12 or even $15 an hour, regardless of their productivity, has the inevitable effect of giving a pay raise to higher-skilled workers and a pink slip to lower-skilled ones.

But North Carolina’s labor market is still more rigid than it needs to be. Far too many occupations require a license to enter, for example. My John Locke Foundation colleague Jon Sanders has spent years quantifying the very real costs that occupational licensing imposes on both workers and consumers.

Sanders also has a good solution to offer. In 2013, North Carolina instituted “periodic review and sunset” of state regulations. Every 10 years, state agencies must review each rule on the books. If the expected benefits of the rule no longer exceed the expected costs, or the rule fails to get a review at all, it automatically disappears.

It’s a great idea. It’s already done away with many outdated or counterproductive regulations. Unfortunately, the process doesn’t yet apply to occupational licensing. Sanders would subject all licensing boards and their licenses to periodic review and sunset, as part of a package of other reforms to make it easier for North Carolinians to enter new occupations.

For example, if a newcomer was previously licensed in other state, it ought to be very easy to get licensed here. And for many occupations, why not let providers obtain voluntary certification, not mandatory licensure, and then let consumers decide how much they value that certification through their own choices?

Conservatives are bracing for years of bad news from Washington. We know the progressives who will staff the Biden administration have very different preferences from ours. Fortunately, government power in America is still decentralized to a significant degree. Conservative leaders need not just complain. They can act.