How Regulation Affects the Consumer

By Oliver, Daniel | Consumers' Research Magazine, July 1993 | Go to article overview

How Regulation Affects the Consumer

Oliver, Daniel, Consumers' Research Magazine

By way of self-preservation, the American consumer will have to become more involved in the regulatory process than any reasonable person would want to be.

The regulatory burden is huge - and hugely difficult to quantify with any precision. But we must not let its size or complexity paralyze us. It's too important; we pay for it - both in taxes and in the higher prices and fewer choices among the goods and services we buy. So we must learn to look at regulations and examine just what they do.

Now it's true that not all regulations are bad. Some regulations can produce efficiency or other socially desirable effects. A simple example is the traffic light at a busy intersection, which promotes efficient movement of traffic. A more complex example may be the antitrust laws. Obviously there are others. The point is, you don't have to be an anarchist to be a deregulator.

In order to prepare for the task that lies ahead, I want to suggest three rules to remember when thinking about regulations.

1. First: Because regulations are as numerous as weeds people tend to think regulations grow like weeds. All by themselves, in the dark. They don't. Regulations grow like orchids, each one carefully cultivated in the hothouse of politics by some interest group that desperately wants it and is willing to spend millions of dollars and years of effort to make it flower.

2. The second rule is a corollary of the first. Someone is going to benefit from each regulation. Often, it will be a specific industry or commercial interest. Sometimes it will be only the power-hungry bureaucracies in Washington. People who will benefit are people who will lobby. They may say they have the public interest in mind. Watch out.

Many regulations which are actually economic regulations are dressed up in the rhetoric of health and safety. But strip away the white coat and stethoscope and you will find underneath a rule designed to benefit one group at the expense of another, designed to transfer wealth from one group to another group with more political power.

We should remember that most legislation is special interest legislation.

3. The third rule is a corollary of the second. There's no such thing as a free regulation. Somebody has to pay for each regulation - as somebody has to pay for lunch.

It may not always be apparent who pays. Sometimes it may be a small group, probably, in fact, a "target" of the regulation - targeted because the disadvantage they will suffer is what produces the advantage for someone else. Sometimes it may be the general public that suffers, in higher prices or a less efficient national economy. But someone always pays.

Categorizing Them

Regulations have traditionally been divided into two categories, economic and social. I prefer to categorize them with more specificity, however, in terms of what they actually do.

1. First, there are what might be called "market failure" regulations - regulations that purport to correct failures in the working of the free market.

In an economy as large as ours, it's always possible to find things that go wrong. That gives government people a chance to trade their wares - legislation and regulation - for votes. But their cures are almost invariably worse, and longer lasting, than the diseases. Airline regulation lasted for decades.

Does the market fail sometimes? Sure it does - but we have to remember that the market doesn't have to work perfectly to work better than government.

2. Second, there are wealth transfer regulations-regulations that transfer resources from a politically weak group to a politically powerful group. Often wealth-transfer regulations masquerade as health and safety regulations.

3. Third, there are genuine health and safety regulations - regulations that actually have the health and safety of the public in mind. Of course, some people will profit from those regulations in the course of providing health and safety to the public, but their profit is ancillary; it is not the underlying reason for the regulation. …

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