Privacy Regulation and Political Economy

Good-hearted people want to cure hunger, ignorance, and other human deficits. Many see the cure in taking from the group of “haves” and giving to the “have-nots.” Along with the injustice of the transfer itself, libertarians like to point out the backward incentives that generous, systematic giving creates. Poverty and ignorance becomes a low-end, but survivable, mode of living. It’s not really a surprise that these problems respond to subsidy by becoming intractable.

That’s simple math to people who understand incentives, so it shouldn’t be hard to recognize incentive structures and their warping in other areas. Take federalism. The Constitution set out a design for government that aligned political incentives well. With a limited federal government and plenary powers left with the states, elected officials closer to the people would provide better government because they would be responsible to smaller numbers of people at the ballot box.

When state officials go wrong, good-hearted, economically-minded people want to cure their deficits. Many see the cure in removing power from the state level to the federal through preemption. State regulation can interfere with national markets, and there is a Commerce Clause that arguably permits national regulation of all things commercial.

But the Commerce Clause was not a grant of plenary authority over commerce anywhere in the United States. It gave Congress power to “regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” Think of a border sentry tasked mostly with preventing anyone from erecting gates.

One can “fix” bad state regulation by replacing it with a less-bad, nationally uniform rule. But doing so frees state officials from responsibility. The subsidy makes carelessness a low-end, but survivable mode of governing.

So with California Attorney General Kamala Harris brandishing $2,500 fines per download of apps in California if they don’t meet the terms of the California Online Privacy Protection Act, I don’t think the right answer is for the federal government to whisk in with its own less-bad privacy law that preempts California’s. The attorney general and the authors of California’s law should be allowed to let their behavior have its effects in their state, responding to their state’s voters if it has negative consequences.

The federal government’s only response should be to make clear that there are limits on California’s ability to bring out-of-staters into court. The federal government should preserve the right of people and businesses to exit states that make themselves unfriendly through high taxes, poor services, and inefficient regulation. This will set up the incentive structure under which governance in the United States will thrive, perhaps at the cost of California sinking into the ocean.