An interesting development has arisen on the issue of regulation.  It seems that some state legislatures have moved to limit how much local governments will be allowed to regulate businesses and people.  This is quite a development.  In the past usually the states were only too happy not only to regulate directly themselves but to leave it to local governments, especially cities, and particularly large cities, to tax and regulate to their heart’s content.  It looks like some have finally gotten the message that when that happens, bad things tend to follow.  Over-regulation tends to drive business and people out of cities, which leaves a lot less tax revenue and a much bigger problem of poverty.

Just to refresh the memory, current law, which has been “current” for about 250 years now, says that cities are legally “creatures of the states.”  This is pretty commonsensical, since they are not mentioned in the United States Constitution and so have no independent status like states do in the scheme of federalism.  So they can only do what state legislatures allow them to do by either legislation of state constitutional amendment.

In the early 1900s, as cities grew rapidly, they began to pester legislatures for more authority and as they grew even more after World War II, they fairly screamed for more authority.  Most of this newly-granted authority went (in large cities at least) to fulfil the dreams of Progressive and Liberal city officials.  One by-product of this search for utopia in the city was that regulation of all sorts followed.  City governments were only imitating their state governments and the Federal government in the explosion of taxation and regulation.

Despite massive funding from the Federal government plus help from states and permission to tax and regulate, the utopian dream did not come to pass.  It was obvious to some (for example the economist Charles Tiebout, who coined the term “voting with one’s feet”) that the incentives were all wrong.  Costs of doing business only increased and profit declined.  In marginal neighborhoods this had a magnified effect, as such businesses were often operating at very low profits already.  When the taxes and regulation came, many simply went out of business and others left for greener pastures—literally, as they moved to the suburbs.  People did the same thing.  Marginal but stable neighborhoods now were pushed over the brink into unstable and very blighted and dysfunctional neighborhoods.  Now this was not the only cause of the consequences (as I have written earlier on this blog), but it was one significant cause.

Unfortunately the states can take away but they can also give back if they choose.  If the political winds blow the opposite direction that may well happen.  But for now at least, cities are finally being reined in a bit.  This is good.  Perhaps it will also cause them to their resources (that being their citizens and businesses) a little more wisely.  And everyone will be better off for it.  Not only that, but perhaps with some other changes, cities may begin to reverse course and prosper again.  But there is still much work to be done.