#New state laws, old economic dilemmas – Twin Cities #Usa #Miami #Nyc #Houston #Uk #Es

Storied late Supreme Court Justice Louis Brandeis once said, “states are the laboratories of democracy.”

In a federal system such as ours, new policies can be tested for citizens in one state even if our federal House and Senate are initially opposed for the nation as a whole.

This session’s DFL majorities in the Minnesota Legislature have labored hard and fast in their lab and are pushing through many measures that are new to our state, the impact of which may influence in other states and, eventually, Congress. These include a broad ban on PFAS “forever chemicals,” a broad-reaching parental and family leave act, new policies detailing how medical providers must manage nurses and legalization of recreational marijuana.

Most of these contain key nuggets of economic reasoning. Exploring these may help clarify one’s judgement as to whether these are good or bad for the state.

But let’s just focus on a few for now.

One economic problem with individual states making large innovations that impact other states is the “prisoner’s dilemma” idea. In “game theory,” developed decades after Brandeis’s enthusiasm, a prisoner’s dilemma is a hypothetical situation in which several arrestees accused of a crime can choose to stand together to face trial, a lesser charge and possible penalty. But if even one breaks ranks and makes a plea deal ratting out the rest on a more serious charge, he skates while the others potentially get longer sentences.

If a new law in one state imposes higher costs on either consumers or employers, and other states do too, then relative incentives don’t change. But if many other states do not follow suit, the innovator will face disadvantages. Customers may simply cross state lines to buy banned products, or multistate businesses may choose to locate or expand elsewhere, costing jobs. Moreover, multistate delivery services like Amazon can complicate any single state’s enforcement of delivery or sales taxes.

That’s potentially the situation with Minnesota’s ban on most per- and polyfluoroalkyl substances, or PFAS.

Developed decades ago and manufactured by 3M, Dupont and other large industrial and consumer product companies, these now ubiquitous chemicals are essential to Teflon and TFAL for nonstick cookware, sealing tape for mechanics and plumbers, firefighting chemicals and myriad other products we buy everyday, including some tampons. They harm people and animals and are in the drinking water of some 110 million people. Because they were manufactured here for years, our state has more experience with such pollution than others.

We are not the first to act. Maine led the ban. Half of all states already have limits on using PFAS, although specific lists of banned products and implementation schedules vary widely. So companies that manufacture or use these materials know they must develop alternatives. Minnesota consumers and businesses won’t be alone.

However, depending on how rapidly substitutes become available and whether Iowa and both Dakotas enact similar bans, incentives to cross state lines to buy familiar products may exist. Wisconsin also has a ban, so there won’t be any “PFAs are Us” malls at the first exits in Superior, Hudson or Lacrosse. But many thousands of Minnesotans already do some shopping in Sioux Falls, Fargo and Grand Forks. Ones who shop in Albert Lea can drive 43 miles to Mason City if they scorn the need for a ban. Time will tell how this plays out.

Note that this is the flip side of California’s new ban on pork from any hog born to a sow in a farrowing crate — even if the pork is sourced in another state and shipped to California. These crates, confining pens that don’t even allow a sow to turn around, were adopted in the 1950s to reduce piglet deaths from being laid on by their mothers and to facilitate management of large numbers of sows as operations burgeoned in size. But many consumers now find them inhumane and they are banned in much of Europe.

Size matters. If Wyoming, with 580,000 people, instituted a ban, there would be little disturbance in the overall force of U.S. hog raising and processing. A few firms could specialize and service the state. Its residents would pay more for pork. Those near borders might buy in other states, but life would go on elsewhere.

California now has over 39 million people who eat a lot of pork. Its action will have national consequences. Minnesota is second only to Iowa in hog production. Most of our pork goes out of state, much to California. So we will be affected.

The whole problem is knotty because self-reporting of compliance by farmers would be a joke. So one large state’s ban will necessitate a large and costly set of inspectors similar to what organic producers already face. But the dirty secret of the organic industry is that there is a lot of cheating. That could happen in spades for the hog industry unless many other states quickly follow California’s lead. Prices will rise to California households and may fall to some farmers, including here.

Our Legislature also passed a sweeping health care bill that, among other provisions, gives nurses more say in staffing levels, a measure sought by their union and opposed by hospitals and their trade associations. The Mayo Clinic in Rochester immediately flexed its economic clout, threatening to move some operations elsewhere. Mayo got a carve-out, or exemption, from rules all other providers will have to meet.

Again, this is competition between states with shades of the prisoner’s dilemma. But there is another economic idea, that of “barriers to exit.”

Intro econ students learn that for an unregulated market to give society optimal results, competition is key. There must be no “barriers to entry” that keep new producers from jumping in to prevent existing ones from becoming  abusive monopolists. But at the next level of micro theory, econ majors learn that barriers to producers leaving also can perturb market efficiency.

Mayo’s muscle flexing is similar to that of Disney in its duel with Florida Gov. Ron DeSantis. Both Mayo and Disney are large entities. But both have huge investments that cannot be packed up and moved like county fair midway rides. The investment is not only in fixed facilities, but also brand identity. Mayo has large operations in Arizona and other states, but Rochester is part of its global ethos. Pilots of personal jets of myriad Middle Eastern sheiks seeking health care know the course to little Rochester, Minn.

So legislators need not have believed that Mayo would strike its tents and decamp. But these are not either-or situations. Disney won’t close Disney World, but it just announced that a planned $1 billion expansion to shift much general corporate admin from California to Florida is on hold. Mayo certainly could have similarly skewed future expansions, had it not prevailed.

Part of Mayo’s win was its argument that it already has a unique personnel management system with input from nurses and other key employees. But anytime you allow special treatment to one entity that you deny to its competitors, you are tilting the table. Time will tell on this issue and others. The consensus on harms of PFAS bodes an eventual national phase-out. But the hog sector will be quite a spectacle for some years to come.