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When Life Hands You Lemons, the Government Will Regulate How You Use Them

06/24/2019

In the summer of 2015, Andria and Zoey Green decided that they wanted to surprise their father with a trip to the local water park for Father’s Day. As young entrepreneurs, the girls, ages 7 and 8, decided to raise the $105 they needed by selling cold lemonade to passersby on a scorching Texas day. At the highly competitive price point of 50 cents a glass, they made more than $25 in an hour. The girl’s business was thriving, until the Overton Police decided to join the party.

As the girl’s mother, Sandi Evans, recalls, “A code enforcement officer and the chief [showed up], she called me to the side and said we needed a permit.” Initially, the city agreed to waive the traditional $150 “Peddler’s Permit,” but the girls crash course in government regulation wasn’t over. Not long after the initial encounter with law enforcement, the girls were told to pack up their lemonade stand. The Health Department had gotten involved.

Though the Green sister’s story is no doubt the exception, it highlights the ways that broad reaching regulations often have unintended consequences. After the Overton Police Department received backlash for shutting down the stand, their response was quite realpolitik. Rather than comment about the ethics of shutting the stand down, Overton Police Chief Clyde Carter stated simply, “We have to follow by the state health guidelines. They have to have a permit.”

What Carter was referencing was Texas HB 970, the Texas Baker’s Bill, that passed the legislature in 2013. The original intent of the law was to regulate the cottage food industry, bringing home-grown restaurants under the purview of the health department. The law states that anyone can sell non-perishable homemade food items without a permit up to a net-profit of $50,000.

The Texas Baker’s Bill is not all bad. Surely, cottage food industries need some sort of accountability for the sake of public health. The problem is that the law was written in such broad-reaching terms that it created disastrous externalities when it hit reality.

Since lemonade is not on the list of sixteen non-perishables that can be sold without a permit, Chief Carter was right, the Overton Police were technically just doing their jobs and following the law. Since lemonade can grow bacteria if left unrefrigerated, the law states that it must be permitted and regulated by the state or local authorities. Of course, this legally technical argument ignores the reality of what a lemonade stand is.

Luckily, the State of Texas took notice of the incident in Overton and unanimously passed legislation that bans municipalities from enacting rules and regulations that would prevent children from occasionally selling nonalcoholic beverages in public parks or on private property with permission from the owner. As soon as September 1, Andria and Zoey will be able to set up their lemonade stand without fear of intervention by the police. This is a significant, if small, step in the right direction of deregulation.

However, we would be remiss to not recognize that what happened to Andria and Zoey should never have even happened in the first place. It is one thing to find faults in the law and remedy them accordingly. This is what happened with the lemonade law, and such quick action should be applauded. Yet, it is our legislator’s job to think critically about policy to prevent these sorts of miscalculations in the first place.

The Texas Baker’s Bill was never intended to stifle the thriving lemonade stand industry. No member of the legislature in 2013 noticed this discrepancy in the bill. If legislators realized that the law they were passing would prevent their grand-kids from selling lemonade without a permit, there would have been a conniption on the floor of the House. The trouble was that, as often happens with regulation, no one thought about it. In the heat of the legislative process, the Baker’s Bill was introduced, discussed briefly, and then rammed through.

The failure of the Baker’s Bill demonstrates excellently why it is important to carefully consider each new proposal that comes up. The intent of the law and the reality of the law are often two very different things. The politicians in Austin had good intentions, but when the regulatory rubber hit the road, all of the externalities that hadn’t been accounted for encouraged an outcome that was the antithesis of the legislator’s intent. Since it is incredibly difficult, and often costly, to determine how your proposal will play out in reality, politicians should always steer to smaller and more specific changes. Rather than push huge overhauls that are bound to result in both massive positive and negative externalities, legislators should seek acutely directed incremental change.

Although the events in Overton and subsequent regulation changes demonstrate the faults of a broad-reaching regulatory scheme, the Evans’ sisters story has an important silver lining. The Baker’s Bill and Peddler’s Permit requirements didn’t keep the young entrepreneurs from succeeding. Rather than give up on their dream of a great Father’s Day present, the girls found a loophole. Instead of selling lemonade, they decided to give it away in exchange for donations.

Since the girls were not “selling” the lemonade, they fell under less restrictive regulations designed for school bake-sales and the like. In other words, although regulations and their externalities can be significant barriers, driven individuals can always find a way to succeed. Sometimes you just have to be more creative than the regulations.