Regulation: The problem most Americans don’t understand

Government regulation is so persistent and so popular because the American public doesn’t understand why regulations can be harmful.

“Economic theory suggests that the vast majority of regulations are counterproductive, and many actually hurt the people they are intended to help,” Scott Sumner wrote for the Foundation for Economic Education.

The reasoning is simple: regulation increases costs for businesses, who usually pass those increased costs to consumers. Many of those regulations get approved without a thought to their economic input. Compliance costs for the IRS to hunt down tax evasion from Americans living abroad, for instance, might cost more than the net effect of tax evasion. Economically, it makes Americans worse off.

That doesn’t mean all regulations should be removed.

“Special market failures, such as monopoly power, externalities, and information asymmetry,” Sumner wrote, could require regulations, as well as “primarily environmental mandates (or taxes), and perhaps a few anti-trust rules.”