The danger, of course, is that having the states make their own regulatory policy risks balkanizing the large U.S. market and hurting economic growth. As European countries integrate their many economies into one, America may well be on its way toward disaggregating its huge market into many. That would be terrible mistake.
But a greater danger may lie in business ignoring the populist message. If states and their AGs can be said to speak for their local constituents, then people are saying that they want greater honesty from Wall Street, cleaner air, real competition in cable- and satellite-TV markets, and some control over health care and drug prices.
The failure of federal regulators to check Enron Corp.'s apparent manipulation of California's energy market and the SEC's hesitancy to crack down on auditors and analysts only makes federal regulatory efforts look all the more lame. Both the business community and the SEC would do well to catch up to popular sentiment, if only to preserve a unitary economic market. Federalism could be very costly to business.