The more complicated the process, the less we are likely to notice when the federal government screws up. That doesn't mean we're doing fine; it may just mean that the federal government tends to be in charge of regulating the more complex, far-flung market processes.
Because the disputes are hard to understand, the reaction to regulations at the federal level tends to line up on purely tribal affiliation: if you're a conservative, you assume that any new EPA regulation is a disaster, and if you're a liberal, you assume that it must be pretty swell. Among wonky liberals like Matt, I think there's the mirror tendency to assume that because the economy is not obviously being driven into the toilet by this stuff, the federal government must be doing a pretty okay job.
But this may just be the broken window fallacy in action: we see the distortions of the local government, but the distortions of the federal government remain invisible precisely because they're so effective at destroying innovation. The more national the rules, the harder it is to tell whether they're bad. The economy would not be destroyed if we had federal laws against Uber and food trucks; we'd all just be a little worse off.
The problem is, if the rules were national, none of us would even know that we were worse off. No one would ever have tried to start a food truck, so Matt and I wouldn't even know that there was this great thing we were missing. We may be assuming that the Federal rules work pretty well precisely because they have entirely foreclosed a bunch of great possibilities that we'd really enjoy.
Then there are the things that federal rules don't entirely eliminate, but just make difficult and more expensive. Matt argues that there are things which the government should make difficult and more expensive, like dumping mercury into the air. I agree! But we should always remember that those rules frequently make it difficult and more expensive even for people who have no intention of dumping mercury into the air, because the rules frequently require that you take affirmative steps to ensure--and demonstrate--that you're not doing whatever is forbidden. And at this point, the list of these things is so long that compliance is becoming impossible, particularly for small shops.Megan McArdle, when insufficient regulation might let the Chinese poison her dog:
So now she tells us that market equilibrium doesn't work. I thought we didn't need regulation because the market was self-correcting.