Sunday, February 9, 2014

Regulations, Regulations and Regulations

Both sides of the political spectrum love regulations, as they state the following:  "Regulations are good because they protect us from greedy capitalists", or they provide us this line, "We need to reduce regulations, but we need to keep regulations that make sense"? What?

Economic analysis demonstrates that regulations, if they are "good" or "bad", provide an additional cost in the economy. We are told that these regulations are needed to protect us from the "greedy capitalists". This line is rather odd considering that the larger corporations lobby Congress and HELP WRITE THE REGULATIONS! If you are skeptical, see who helped in the formation of Obamacare. 

These larger firms understand the economics behind this action: The increased costs of having regulations remove the smaller firms out of the marketplace, the larger ones can absorb the cost of these regulations. Of course, the larger corporations can afford to pay off the regulators to help avoid any punishment of any regulation violations.

Speaking of the costs:  If one takes the 2002 Sarbanes-Oxley regulation, the explicit economic costs are estimated to be around $1.4 trillion. This is simply one regulation, as there are many on the books.  How does $1.4 trillion benefit us?

Politicians love to trumpet that they want more jobs in the economy. The argument is typically about what marginal income tax rate is optimal for the "rich" and the "poor". While this polemic is being verbally volleyed from one sound bite to the next, no one addresses the egregious amounts of regulations that prevent capital formation.

In short, regulations create economic inefficiencies, as they add costs onto the actors in the marketplace. They simply should be reduced, or in many cases,eliminated.  One would think with the mounting levels of debt, the US. Government would relax many of these regulations.

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