Question

. . List and explain 4 reasons against federal government regulation of business. Include the economic consequences of each for the economy and you individually.

Answer 1

1) Government regulations are a hidden tax on the market- Regulatory compliance costs, learning about and coping with often complex rules, along with whatever direct costs each specific regulation imposes on the targeted firms in the regulated market, merely act as a tax on the affected industry. A tax drives a wedge between supply and demand, leading to higher prices for consumers and lower net revenues to producers in most markets.

2. Government regulations dull competitive market forces by erecting barriers to entry and forcing marginal firms out of the market- Regulations often act as a suppression on competition, creating monopolistic outcomes in the affected industries. To the extent that regulations impose costs that lead some firms to exit the market, or discourage entry into the market by entrepreneurial startups, regulations lead to a less competitive marketplace. Regulations that in any way encourage exit from the market and discourage entry into the market will naturally restrain competition and deprive consumers of those competitive benefits. Regulations almost universally lead to a less competitive marketplace.

3. Government regulations are a form of special interest protection and rent-seeking by the business community-

4. Government regulations are redundant, since the free market is self-regulating

5. Government regulations threaten the rule of law and violate property rights, often subverting market forces to the arbitrary whims of bureaucratic decision makers.

So, for all these reasons, government regulations pose serious threats from undetected costs and adverse consequences.

They act as hidden taxes that drive up prices for consumers, create barriers to entry that suppress competition and innovation, serve as protection from competition for established firms and the politically influential, are redundant on the self-regulating forces of the marketplace, violate property rights and the rule of law, lead to confusion and uncertainty in business investment and entrepreneurship, and their costs will tend to exceed their benefits unless subjected to rigorous cost-benefit analysis and a thorough vetting process.