Experimenting With Food Labels

label.jpgSteve Bainbridge highlights pending federal legislation to preempt state food label rules that are inconsistent with the FDA’s standards. He comments that the law would be a “perfectly plausible exercise of Congress’ power under the Commerce Clause.” I agree, even though there are non-frivolous arguments to the contrary (federalism concerns for states’ police powers; locally grown foods; etc.) But putting aside constitutional shibboleths, I think that just because Congress has the ability to preempt state legislation doesn’t mean it should.

The argument against allowing states to add new disclosure requirements to food labels goes like this. The great competitive strength of the American economy is its internal free trade network. Inconsistent regulation internally is to be avoided where possible, because it results in inefficiencies as producers are forced to retool their products for different states. Moreover, producers must increase their legal compliance costs, hiring lawyers to keep track of regulations in the several states, capture regulators lobby in 50 state legislatures, etc.

But such arguments discount the benefits of permitting experimentation in dealing with cognitive problems. The science of information processing is still relatively young: we haven’t gotten a handle on what disclosures trigger what types of consumption activity. As Larry Ribstein argues in a very different context here allowing states free reign to try different regulations will – as Brandeis long ago argued – create a natural laboratory allowing experimentation in reducing cognitive error. States that require disclosure of facts that consumers find unimportant will soon receive feedback to that effect. Similarly, if producers (as expected) increase prices in markets requiring more disclosure, we could obtain some evidence as to how much consumers actually value labeling. [This could get complicated given cross-border purchasing and free-rider problems, I suppose]. But most importantly, states could try different approaches to the problem of the method of regulation itself. Is the best way to encourage the right disclosure a rule (you must state the number of milligrams of sodium) or a standard (you must disclose information that consumers find valuable)? Should this process be run by regulators (as it is in the federal system) or the common-law jury?

We could start getting answers to such questions, but only if the feds back off.

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3 Responses

  1. Eric Goldman says:

    In the Internet context, this states-as-laboratories models doesn’t work. Among other problems, as we’ve seen with anti-spyware laws and data security breach notification laws, states often robotically clone/pile on a first mover’s laws well before there is any feedback from the “experiment.” When these “cybercascades” occur, we have all of the cost of multiplicious legislation with little of the benefit.

    I’m not convinced this phenomenon will occur with all types of legislation (there may be something uniquely irresistible about Internet regulation). However, my sense is that the pass-first, ask-questions-later state legislative process is prevalent enough across all industries to make federal solutions more beneficial than they might immediately appear. Eric.

  2. the benefits of permitting experimentation

    I thought that was the reason for federalism. Yes, there are trends and fads, just like there are in the marketplace. Should we therefor outlaw markets?

  3. This has nothing to do with principle, and everything to do with getting a more business-friendly standard at the federal level. Business is for preemption of consumer protection laws in the states, but they’re against preemption of state caps on lawsuit damages awards!

    What’s interesting about the federalism debate today is that is it now easier than ever to comply with differing state laws. (Remember the days when you had to calculate the state tax when ordering via catalog?) Differences in state law can be coded in and accomodated now more than ever.