Opting out of hand-washing regulation: a great case-study in not understanding regulation

My attention was called to this story (which I don’t think is a parody, but it is sometimes hard to tell), in which a U.S. Senator proposed a thought experiment of “easing the regulatory burden” by letting restaurants opt out of (real) public health rules requiring employees to wash their hands after visiting the toilet. His claim was that the market can take care of this: If the restaurant were simply required to post a notice that they have opted out of that regulation, customers would stop going there and the problem would be solved.

It is a brilliant thought experiment, but not for the reason that the naive gentleman from North Carolina seemed to think. Let’s unpack it a bit. The assumption is that the market would force all businesses to all do exactly what the regulation requires. In that case, how is the regulation creating a burden? Moreover, it is difficult to see how requiring notice of lack of compliance with this universally-preferred rule is less burdensome than the original regulation. Specifying the details of what constitutes adequate notice seems at least as complicated as simply requiring hand washing. By contrast, forcing every consumer to pay attention to whether that notice is present, to pay the cost of information gathering, before making every dining decision is an enormous burden. This is all simple economics.

Then there is the choice of which regulation he decided to use for his thought experiment. There are legitimate public (really public) health reasons to take steps to stem the transmission of infectious diseases. The hypothetical customers who decides to frequent a restaurant that opts to allow fecal microbe transmission is hurting not just himself, but those he later passes any resulting infection to. Externalities warrant mandates, not notification. That is again simple economics, and simple public health. Of course, not every regulation that is justified based on reducing externalities is good on net — that requires further analysis. But the existence of externalities creates a prima facie justification for mandates.

Extrapolating the thought experiment, we have many more regulations on businesses that are designed to protect people from something they would (almost) universally demand if they knew about it, but that they cannot judge for themselves, or where they have no choice but to be exposed. Do we really want architects to be able to opt out of safe building standards, so long as a notice is posted that they did? Similarly, regarding externalities, do we want Volkswagen to be able to opt out of clean air standards?

Yes, I know, all of this is basic economics: Externalities. Information costs. Tradeoffs.

But real problems is that too many of those who question regulations shoot themselves, and the cause of consumer freedom, in the foot. They take a position that is as extremist (and as laughable) as those who want to aggressively regulate everything. There are a lot of really dumb and harmful regulations out there. There are a lot of good arguments to be made against lots of regulations. But when someone tries to root their arguments in a premise that every regulation has dubious value or legitimacy, it undermines the whole effort.