Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Dow Long-term Trend Analysis - Coronavirus Triggering a Stocks Bear Market? - 27th Feb 20
Trump or Sanders? Both will pile up the Debt - 27th Feb 20
Oil Price Is Now More Volatile Than Bitcoin - 27th Feb 20
A Digital “Fedcoin” May Be Coming… And It Would Be Terrifying - 27th Feb 20
India's Nifty 50 Stocks: Does the Bad Jobs Outlook Spell Trouble for Stocks? - 27th Feb 20
How Crypto Currencies Are Helping Players Go Private - 27th Feb 20 -
Gold and Silver The Die Is Cast - 27th Feb 20
US Economy Permanently Addicted to Zero Interest Rates - 27th Feb 20
Has the Stock Market Waterfall Event Started Or A Buying Opportunity? - 27th Feb 20
Advantages of Enrolling in a Retirement Plan - 27th Feb 20 - LS
South Korea Coronavirus Outbreak Data Analysis Warning Rate of Infection is Exponential! - 26th Feb 20
Gold Price Long-term Trend Analysis Forecast 2020 - 26th Feb 20
Fake Markets Are on Collision Course with Reality - 26th Feb 20
Microsoft is Crushing the S&P 500, Secret Trait Of Stocks That Soar 1,000%+ - 26th Feb 20
Europe's Best Ski Resorts For The Ultimate Adventure - 26th Feb 20
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Government Regulation is a Another Hidden Tax

Economics / Market Regulation Mar 16, 2015 - 12:09 PM GMT

By: MISES

Economics

D. Brady Nelson writes: Perhaps due to it not being as readily quantifiable as government taxation, debt, welfare, and money creation; regulation has too often been superficially dealt with. In many ways, the largely “hidden tax” of regulation is a bigger threat to liberty, economy, and morality than other weapons of forceful government intervention.


What Is the Problem?

The total number of restrictions in federal regulations has grown from about 835,000 in 1997 to over one million by 2010, and the number of pages published annually in the Code of Federal Regulations, never substantially declined, and in fact has consistently grown. It has been estimated that regulatory compliance and economic impacts cost $1.863 trillion annually. This amounts to US households paying $14,974 annually in regulatory hidden taxes, with households thereby spending more on embedded regulation than on health care, food, transportation, entertainment, apparel and services, and savings.

However, this is just the proverbial tip of the regulatory-burden iceberg. The tangible burdens above are a quite manageable list of the more immediate impacts such as extra money spent by business to comply and government to enforce regulation. However, the intangible burdens are an almost infinite list of the less immediate impacts, such as lower performance throughout the economy in terms of entrepreneurship, innovation, growth, customer service, and jobs. The intangible burdens do not readily lend themselves to quantification like the tangible burdens do, and thus it is harder to understand the magnitude and even the exact nature of the almost infinite potential problems caused-and-effected. This is made harder due to the fact that value is always subjective (and ordinal) to each individual at any one point in time and, thus, there are no objective (or cardinal) opportunity costs and benefits of regulations as a whole that can simply be observed, calculated, and compared using cost benefit analysis (CBA).

Why Is There a Problem?

The most important of these intangible burdens of regulation are the unintended negative consequences on decentralized and dispersed knowledge and incentives. As Frédéric Bastiat pointed out: “In the economy … a law gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen.”

Thus, in terms of regulation and other policies: “[I]t almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse.” The unintended consequences of regulation are usually even worse than this, as they usually — unlike in free markets — promote a relatively small group of private interests at the expense of a relatively large group of individuals.

From a Public Choice school perspective, the regulation problem is essentially one of government failure and rent seeking, noting that: “(1) individuals in government (politicians, regulators, voters, etc.) are driven by self-interest, just as individuals in other circumstances are, and (2) they are not omniscient.”

Worse still: “[S]pecial interests are disinclined to seek direct wealth transfers because their machinations would be too obvious. Instead, regulatory approaches that purport to provide public benefits confuse the public and reduce voter opposition to transfers of wealth to special interests.”

From an Austrian school perspective, the regulation problem is essentially one of economic calculation and bureaucracy. Ludwig von Mises explains: “Without market prices for the means of production, government planners cannot engage in economic calculation, and so literally have no idea if they are using society’s resources efficiently. Consequently, socialism [and regulatory interventionism] suffers not only from a problem of incentives, but also from a problem of knowledge.” Mises said regarding the latter that: “A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation.” And this inevitably leads to regulatory failure as: “… [t]he lack of [profit-and-loss, price and customer-oriented] standards [which] kills ambition, destroys initiative and the incentive to do more than the minimum required.” All of this is, of course, the antithesis of consumer-driven entrepreneurialism.

At perhaps a still deeper level, Murray Rothbard reasoned:

When people are free to act, they will always act in a way that they believe will maximize their utility. ... Any exchange that takes place on the free market occurs because of the expected benefit to each party concerned. If we allow ourselves to use the term “society” to depict the pattern of all individual exchanges, then we may say that the free market ‘maximizes’ social utility, since everyone gains in utility.

On the other hand:

Coercive intervention … signifies per se that the individual or individuals coerced would not have done what they are now doing were it not for the intervention. … The coerced individual loses in utility as a result of the intervention, for his action has been changed by its impact. … [I]n intervention, at least one, and sometimes both, of the pair of would-be exchangers lose in utility.

What Is the Solution?

The solution is of course deregulation — as much as possible, as fast as possible. However, both special interests (as emphasized by the Public Choice school) and bad economics (as emphasized by the Austrian school) will need to be overcome.

This combination was colorfully dubbed the “Bootleggers and Baptists” phenomenon. It has been observed that:

[U]nvarnished special interest groups cannot expect politicians to push through [regulation] that simply raises prices on a few products so that the protected group can get rich at the expense of consumers. Like the bootleggers in the early-20th-century South, who benefited from laws that banned the sale of liquor on Sundays, special interests need to justify their efforts to obtain special favors with public interest stories. In the case of Sunday liquor sales, the Baptists, who supported the Sunday ban on moral grounds, provided that public interest support. While the Baptists vocally endorsed the ban on Sunday sales, the bootleggers worked behind the scenes and quietly rewarded the politicians with a portion of their Sunday liquor sale profits.

More dauntingly, Murray Rothbard reminds us that, in many ways, the history of humanity can be seen as a race between bigger government versus freer markets:

Always man — led by the producers — has tried to advance the conquest of his natural environment. And always men — other men — have tried to extend political power in order to seize the fruits of this conquest over nature. … In the more abundant periods, e.g., after the Industrial Revolution, [freer markets took] a large spurt ahead of political power [including over regulation], which ha[d] not yet had a chance to catch up. The stagnant periods are those in which [such] power has at last come to extend its control over the newer areas of [freer markets].

It will not be easy to slow, stop, and reverse the century-plus growth of the regulatory state in the US and around the world. The crucial job of pursuing deregulation cannot just be left to politicians from the top down. It will need to come more from as many voters and seceders as possible from the bottom up and every direction in between.

D. Brady Nelson is a regulation expert with the Heartland Institute of Chicago, Illinois.

http://mises.org

© 2015 Copyright D. Brady Nelson- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules