Yglesias and Right-Sizing Regulation

Matthew Yglesias writes in Slate that he’s found the crux of America’s problems: we’re “simultaneously overregulated and underregulated”:

It is much too difficult to get business and occupational licenses; there are excessive restrictions on the wholesaling and retailing of alcoholic beverages; exclusionary zoning codes cripple the economy; and I’m sure there are more problems than I’m even aware of.

At the same time, it continues to be the case that even if you ignore climate change, there are huge problematic environmental externalities involved in the energy production and industrial sectors of the economy. And you shouldn’t ignore climate change!

While his argument fairly portrays some major issues in US politics, Yglesias paints with some very broad strokes here: local regulations are largely rent-seeking from established businesses and residents, while national-scale regulations that we need to solve big problems with climate, energy, finance, and pollution aren’t happening. Fair enough; it’s not hard to find examples on both sides of that coin. But ‘right-sizing’ is a difficult dance, and burdensome local regulations are often the next-best solution to hard large-scale problems.

The complexity of modern zoning codes and procedures–one of the items on Yglesias’ naughty list–are both a response to shrinking federal budgets for local infrastructure and a way of regulating the kinds of externalities that occur on a micro-scale in urban areas. While the urgency of separating factories and schoolyards with heavy-handed exclusionary zoning has passed, our desire for more livable places to live, work, and play has only grown. Great streets and vibrant public spaces don’t just happen–they’re almost always a function of planning and coordinated partnerships between developers, landowners, businesses, and government. That means regulations.

Meanwhile, funds for amenities and infrastructure–ranging from transit and bike lanes to supportive housing and daycare to public art–are all increasingly strained by the devolution of financial responsibility from the federal to the local level, where governments are less able to raise money by borrowing or raising taxes. The response many cities have been left with is systems like impact fees and development cost charges, which finance the infrastructure costs of new developments. Here in Canada, Vancouver’s complicated system of negotiated density bonuses in return for building public amenities or going the extra mile on design exemplifies this approach–but it also adds a heavy regulatory burden, especially for new or outside developers.

Local government is inevitably messy and self-interested, but it’s also responsive. When the federal government isn’t, localities wade in and make the best of a bad situation–as we’ve seen across North America on large-scale issues from obesity to climate change. Leadership in Congress that’s genuinely motivated to solve national challenges might help set a better example of how to scale regulations at the local level… but I’m not holding my breath.


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