NCPA - National Center for Policy Analysis

Regulations Are Costly to American Consumers and Businesses

February 21, 2012

The federal government continues to create costly regulations for American businesses and consumers.  This persistence in creating subpar rules is due to a number of parties involved in the process who are motivated by factors other than the public good, say Richard Williams and Sherzod Abdukadirov of the Mercatus Center.

Individual business and industries are often major players in the creation of bad regulations.  Though requirements imposed by federal agencies often impose harsh costs on these corporations, there are a number of circumstances under which they stand to benefit.

  • By voluntarily imposing higher costs on an industry, larger participants in a sector can drive smaller actors out of the market and increase their own market share.
  • Industrial giants can also advocate regulation as a means of creating barriers to entry, such that they face little competition from new startups.
  • Regulations can also create an artificial demand for a product that consumers do not normally want -- the Renewable Fuel Standard created a demand for biofuel where one previously did not exist.

Members of Congress are also culprits in the creation of bad regulations.  Traditionally, members have used pork barrel spending and public policy to appease key constituents.  However, as public attention has increasingly focused on federal government action (especially on spending), members of Congress have found regulation to be a more effective, less obvious means of accomplishing the same end.

Finally, the individuals that staff the regulating federal agencies face adverse incentives.

  • Many regulators suffer from a sort of "tunnel vision" -- they are focused on their agency's individual mandate and fail to account for the impacts of regulations in other areas.
  • Others see regulations (especially costly ones) as a means of increasing the legitimacy of the agency and garnering a larger budget; this increases opportunities for promotion and a higher salary.

These parties, each in their own way, help to continue to create costly regulations for American consumers and businesses.

Source: Richard Williams and Sherzod Abdukadirov, "Blueprint for Regulatory Reform," Mercatus Center, February 2012.

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