Is regulation inefficient?

Looking for an interesting article, I stumbled across an article from ten years ago where America’s economy suffered from the negative side effects of regulation. The employment rate dropped when regulations such as minimum wage laws and federal labor laws were placed on the primary engines of job creation, small businesses. This is an example where politicians thought that regulation was a benefit to society but in fact it was detrimental and unnecessary. It is obvious the consumer voter was note getting what they wanted in this case. This unnecessary and inefficient regulation at federal, state, and local levels in 1993 cost the American people somewhere between $810 billion and $1.7 trillion per year even after taking account of the benefits of regulation. With these statistics, how is it possible to assume that politicians are actually acting on behalf of the public and not in self-interested ways. The problem arises when it is hard to see this heavy cost of regulation because the toll is not usually apparent. It is hidden when regulation merely leads to slower grower in employment rather than to visible loss in existing jobs. Jobs not created are much less visible than layoffs. Also, the effects of the regulation on employment can be hidden by other factors such as tax policy or general economic changes. Moreover, it is hard to solve this problem from regulation because lawmakers and officials have no explicit requirement to look at negative effects of policies before they make new rules or regulation. Even when agencies or congressional committees consider the negative impact of regulation policies on the economy, policymakers just look at the problem in a simplistic way and use faulty models and wrong assumptions. In the article it states that, “nowhere in the entire federal regulatory process does anyone consider the cumulative effects of existing regulation or the possible combined effects of new and existing regulations.” Therefore, it is actually more efficient to have a world without taxes or regulations because this article points out that the cost to employers of hiring an additional hour of labor services and the benefit to a worker of working an additional hour would be the same. Taxes and regulations only raise the cost to employers above the reward received by the employee and we see costs to government such as decreased employment. While some of these government-imposed costs provide a benefit to the employee, many of them do not. Like discussed in class, regulation could be inefficient especially when the group being taxed is a lot larger than the group that is benefiting from the regulation. In this case, regulation is inefficient because the damage in the form of slower economic growth and therefore lower employment is hidden. It becomes hard to vote against and the policy ends up being passed. Peltzman’s argument that we get regulation where we want it and that it is efficient is false in this case. Society would never want the American employment rate to drop. Visit this link to see the article: www.heritage.org/Research/Regulation/BG926.cfm