n contemporary political discourse has recently focused on the regulatory deregulation or the backsliding of government regulations in the market particularly those that originate at the federal level.Critics of government regulations can argue that they are too expensive in comparison to their benefits while proponents of regulatory policies can be able to claim that the regulations themselves bring great benefits but the rules may be misapplied in anyway shape or form.However advocates of regulation seldom address deeper issues about the real costs of the policies they propose and critics of government regulation rarely claim economic arguments against them, either because of ignorance or the fear of altering pensions of powerful interest groups or even maybe offend the sensitivity of the typical voter.
What are some of the economic arguments against government regulation? Government regulations are a hidden tax on the market,The costs related to regulatory compliance, the learning and management of complex rules, together with direct costs that each specific regulation imposes on target companies in the regulated market can be limited to serving as tax for the sector concerned.
Whether it is product production regulations, environmental regulations or land use regulations, labor market regulations, marketing and advertising regulations, health care mandates or financial and banking regulations, companies in the sector that are concerned will consider these regulatory costs simply as another cost of doing business just as they would with a tax (levi faur david 2010).As any economist can say, a tax opens up a gap between supply and demand therefore leading to higher prices for consumers and lower net income for producers in most of the markets. The only differences between a tax and a regulatory cost is as follows;a) the tax generates at least one income for the government andb) the tax is usually more transparent and easier to measure in relation to the regulatory costs which tend to be hidden most of the times; the higher prices paid by consumers do not return so easily to their normative source.But commercial companies can only respond to regulatory costs in this way that is transfer part of the regulatory costs to consumers or arrears to owners and shareholders if they can be able to continue to operate and remain profitable (barack 2012). However in many cases, the regulations themselves will create a cost barrier that can be too high for some existing companies to continue operating or for potential companies to enter.Government regulations reduce competitive market forces by erecting barriers to entry and forcing marginal companies to exit the marketThe regulations often act as a suppression of competition therefore creating monopoly or quasi-monopoly results in the industries concerned. To the extent that regulations impose costs that lead some companies to exit the market or in some cases discourage entry into the market of new entrepreneurial companies, regulations lead to a less competitive market. (Banovac 2004)The benefits of competition and open markets are well known. In general, competition imposes market discipline and forces companies to be responsible to consumers and encourages greater efficiency, lower prices, better quality and higher levels of balanced innovation.Regulations that in some way favor the exit from the market and discourage entry to the market and those will naturally slow down competition and deprive consumers of these competitive advantages. Regulations almost universally lead to a lesser competitive market. In fact it is not surprising that this is the reason why many companies actually support higher levels of regulation since regulatory barriers to entry often isolate existing or consolidated companies from competition giving these companies the power of monopoly and decreasing their responsibility towards the consumers. This is known as the capture theory of regulation, as described in topic number three (meats 2011).Government regulations are a form of special interest protection and rent seeking by the business communityThe common perception known by most people is that companies hate regulation, but this is too simple a conclusion and, often in most cases it is not true.In many situations that is depending on the size and position of companies within their sector, companies require regulation. Since our first history of state and federal regulations since the 1880s, regulations have focused on shaping the interests of existing companies that feel threatened by new competitors offering cheaper and more innovative products (Fischer 2012). Established companies have at least two responses to these competitive threats and so they can improve their products, reduce costs and be more efficient and compete face to face with their new rivals.In some cases they can address the government that seeks protection against competition that is both foreign and domestic by supporting rules that create barriers to entry which will then make it difficult for new rivals to compete on equal terms.There are many examples of the latter tactics which include product disclosure regulations, price safety regulations, mandatory inspection of goods and services by the government, fee tables and a series of restrictions and laws of import of work licenses into more professions. In fact managers and owners of existing commercial companies are often called by government officials as “experts” who are asked to contribute to the development of the rules that regulate their industry, and then assigned to these standards those that will be applied most of the times to new companies arriving.Such regulations are often marketed and sold to consumers and voters as “consumer protection” against fraudulent or below-normal and unscrupulous trade. However, the most profound motivation is to exploit regulation as a form of “trade protection” competition, limiting entry and isolating existing suppliers of threats to their market share and pricing power.Recent restrictions and challenges posed to businesses such as Uber, Lyft, Airbnb and countless occupations of professional services, from veterinarians to morticists, interior designers and salon manicurists and braiding hair are a testament to regulatory barriers to the entry of income by favoring existing businesses while it damages the consumers, new competitors and overall market efficiency among others. One revealing proof in this argument is that the new regulations rarely originate with consumers or groups of consumers seeking protection against defective products or fraudulent services. Instead, inevitably, supporting regulations comes almost exclusively from the business world, and in particular from existing companies that hope is to be able to impose barriers to entry for potential competitors (Braithwaite 2000).Government regulations are redundant, since the free market is self-regulatingSome alarmed readers may now ask themselves if government regulations were repealed, or if existing government regulations limit competition to few or some benefit to consumers, who or what will protect consumers in the market other than the government and this is imposed as a question.This is a fair and important question. The answer is as old as the study of economics itself: the self-regulated competitive market, that is the “invisible hand” of Adam Smith.The free market, not conditioned by the distortions of government regulations and inserted within the framework of the rule of law and the protection of property rights can be a wonderful mechanism of self-regulation and consumer protection like no other. The products that do not pass the market test are then eliminated, and the assets of the bankrupt company are transferred peacefully into their arms, waiting for the investors and entrepreneurs who compete and have better ideas about their use. The service providers that do not comply with the quality promised and requested by consumers will be forced to adapt or liquidate quickly. (Mendoza 2014)Goods and services that attract and satisfy consumers will prosper while those that do not will be rejected and fail, as long as the competitive forces of discipline, responsibility and efficiency remain in play in a market without regulatory barriers to entry. If unscrupulous commercial companies defraud consumers, break contracts or if their products cause harm to consumers, the rule of law administered by the courts and the judicial system are willing and able to hear the cases of damaged parties, support and enforce contractual obligations, resolve disputes and assign damages to victims, as appropriate.While markets remain competitive and open to the threat of corporate entry, consumers will always be protected by the combination of market forces and the rule of law respected by the courts. Any additional level of government regulation over this process of self-regulation is not only superfluous and useless, but it will tend to corrupt and erode the self-regulatory nature of the market by launching costly barriers in the way of competition and innovation.Government regulations threaten the rule of law and violate property rights, often subverting market forces to the arbitrary whims of bureaucratic perpetrators.Initially, the political representatives propose and elaborate new broad government regulations. But then they are handed over to the bureaucracies of the federal or state government for implementation and compliance, where details and minutiae are resolved.During the implementation and compliance phases, the agency’s officials have ample freedom and discretion regarding the details of the regulations, so commercial companies and other interest groups are so interested in influencing or capturing the regulatory process to your advantage. The “how”, “where”, “why” and “when” regulatory details are almost always left to the sole discretion of the government agencies, staff and the expert consultants who will be responsible for their compliance, often leading to uncertainty and confusion on the market (not to mention compinism), especially in periods of high turnover in the executive branch of the government.Entrepreneurship and innovation often become victims of this confusion and uncertainty. After all, if you do not know how or how your business will be regulated and influenced, and what costs it might have to bear due to the still unknown or ever changing nature of the regulations, it is best to keep it at bay, keep the dust dry. and avoid the risk of capital in new investments and initiatives for which the potential yield can be canceled by the changing whims of normative interpretation and jurisprudence. This “regime uncertainty” limits business experimentation, investments in research and development, innovation and the normal trial and error process of a healthy, open and dynamic market.Products and services that will be offered in a regulated market are often designed to satisfy political or bureaucratic interests that serve the final interests of the consumer public. Engineering and research and development concern the creation of new products and less influenced by consumer sovereignty and increasingly as a result of bureaucratic sovereignty.How many of us, as consumers, want to buy products cars, appliances, electronics, furniture and household items among other things, just to know that these options were prohibited by government regulation and, therefore, are not available? You don’t want to pay for features. Product governance prohibits it.Being able to manufacture products according to consumers. Therefore, government regulations often lead to suboptimal, inefficient and inconvenient market results that leave many of the consumers not satisfied at all. The irony is that these consumers fail to follow their frustrations and instead of capitalism, market or greedy companies of mixed capital because of their inability to get whatever they want.Government regulations are rarely subject to a full cost-benefit analysis (CBA)From a strictly economic point of view, there are no good or bad regulations, by themselves. There are only those rules where the benefits outweigh the costs or the regulations that impose higher costs than the benefits. According to pure economic theory, the objective is to be able to maximize the previous type of regulation and to minimize or repeal it. However, there are two main challenges that make the practical application of this economic theory extremely difficult or even impossible at all.First, the measurement and evaluation of the costs and benefits of regulation are exceptionally difficult. As mentioned above, many of the regulatory costs are hidden or occur over long periods of time. How would these costs be measured and what discount rate would be used to convert these costs in terms of present value in dollars?If some of the costs of regulation are manifested indirectly through the reduction of competition and the reduction of innovation, how can we measure the opportunity costs of lost products and services that never enter the market, or the absence of lower prices and a quality? Which of the consumers are now private? What other unforeseen consequences of regulations could we lose due to the indirect and often veiled effect they have on incentives?Likewise, government regulations may indeed produce some benefits, at least for some people, and measuring those benefits is no less problematic. What would beneficiaries of regulations be willing to pay in the market to receive those gains? How would we price or value the benefits? How do those benefits occur over time, and what discount rate would we use to express their present value? Some regulations may result in lives saved in some cases. How would we value a human life, and how would that compare to the costs of the regulations that led to the preservation of lives? As callous as it may seem, economists have no less than six different methods of valuing a statistical human life for CBA purposes. Which method would prove best and under what circumstances?Additionally, just because government regulations may exhibit benefits is not alone enough to justify them. The social benefits of the regulations must exceed the society-wide costs, or the price is simply not worth it. Taking for example, just to be safe, I could stop at a brake shop every day, on route both to and from my place of employment, just to have a mechanic certify that my brakes were in perfect working order. This could be of great benefit to me perhaps even saving my life on some random day should my brakes otherwise fail.(Mendoza 2014)However, the costs of a daily inspection at my brake control points far outweigh any marginal reduction in risk or safety benefits that can be received back. The costs in terms of time and money would be excessive in relation to the benefits. The same type of calculation also applies to the analysis of the costs and benefits of government regulations throughout the whole company.It is precisely this harsh reality that leads us to the second challenge in the effective application of regulatory theory even if we can overcome the first obstacle of cost-benefit measurement, most of the political forces that govern approval, implementation and regulatory compliance avoids subjecting them to any kind of cost-benefit analysis (Orbach 2012). This is especially true for government regulation advocates who most of the times try to justify regulations by emphasizing only the most obvious benefits, ignoring and encouraging others to ignore direct and indirect costs.For those who propose an increase in government regulation, both for ideological zeal and for opportunistic and protectionist reasons, apparently, the cost is not too high a price to get the benefits that they believe it can be worth or entail.. For them, any attempt to measure and compare costs with benefits in a transparent way carries the risk of exposing the regulations to uncomfortable truths that could politically hinder their supporters. However if the government regulations really lead to the benefits promised by their supporters, at least we should have the opportunity to conduct a cost-benefit analysis on them (banovac 2014).The fact that the CBA of government regulations is difficult and complex does not mean that we should not do our best to make comparisons. But in the case of regulation, the in-depth analysis of the ACB is rare. The result is that advocates of government regulation often receive a free pass a kind of benefit of the doubt in their defense of more laws and rules. The burden of proof falls on opponents and critics of government regulations to address the case. However, from an economic point of view, this is exactly the opposite.The burden of proof and the duty to clearly demonstrate that the benefits outweigh the costs should fall exactly on those who propose new regulations, and should receive instructions to respond to the arguments of the opponents in the public forum. Otherwise in most situations the demand for special interests for more regulation will be practically infinite, since the proponents of the regulations will not be forced to assume the cost of producing strong evidence of support in the form of a strict CBA. The result is the continuous suffocation and limitation of competition and market efficiency for the benefit of a few restricted interests.Therefore for all these reasons the government regulations pose serious threats of undetected costs and negative consequences.The government regulations act as hidden taxes that raise prices for consumers, create barriers to entry that suppress competition and innovation, act as a protection against competition for established and politically influential companies, are redundant in the forces of market self-regulation, violate property rights and the rule of law, lead to confusion and uncertainty in business investment and entrepreneurship, and their costs will tend to exceed their benefits if they are not subject to rigorous cost-benefit analysis and a process of control comprehensive.A better approach is certainly to allow the automatic and self-regulated invisible hand of the market to “manage” the production and distribution of goods and services. Price signals, competition and the mechanism of profit and loss, together with revealing the underlying conditions of supply and demand, are a system of responsibility much more sophisticated and reactive than the “visible hand”, often clumsy and cruel , of government regulation. . (Kjellberg 2017)