Major Benefits and Costs of Government Regulation Major Benefits of Government Regulation: According to Ingram (2020), having Government Regulations help to protect employees, consumers and the public from actions carried out by firms that may have a negative effect on them. They may often seem onerous to small business owners, but there are benefits as well. Even though the government's administrative costs of regulation are relatively small, the full social costs of that regulation can be quite high. Environmental regulation provides protection to society regarding environmental hazards. Regulatory programs are sometimes captured by businesses and other “interest groups,” who use them to promote their own end—such as restricting competition and suppressing innovation from new firms and business methods, or advancing their market power or political agendas. Some have suggested that wireless carriers offering certain programming for free or without counting against data limits would violate “net neutrality,” but this could potentially preclude an offering likely to be especially attractive to lower income consumers. Strict regulations and requiring licenses allows us to control all facets of the medical marijuana industry including, production (seed to sale), production, consumption and THC levels. Well-chosen and carefully crafted regulations can protect consumers from dangerous products and ensure they have information to make informed choices. There are also many positive externalities to the rest of society. John Allison, "The Financial Crisis And The Free Market Cure" (2013). Government regulation on marketing and advertising: Every business in the United States must comply with truth-in-advertising laws regulated by the Federal Trade Commission (FTC), as well as comply with the Fair Packaging and Labeling Act of 1966. The regulatory framework tends to focus on solving the next big problem (on the assumption that markets fail but regulators are infallible), without ever looking back to see if the rules in place are actually working as anticipated.46 The incentives of the regulatory agency can be perverse, causing it to actively avoid the efficient solution—to prefer a system of rules and enforcement actions, for example, to a self-enforcing system of emissions taxes. During the Trump Administration, the average has been only 4… 10 Breyer, Stephen, Breaking the Vicious Circle: Toward Effective Risk Regulation. The only real skepticism is over environmental regulations, but even here 79 percent of all Americans (and 59 percent of Republicans) are in favor of regulation. Fortunately, the courts—including the Supreme Court31—recently have clarified that in the vast majority of cases, agencies may exercise their discretion to balance benefits and costs in implementing regulatory statutes. But the most costly regulations are those designed to improve air quality, reduce energy consumption, and ensure safe working conditions – goals the public generally favors. Poorly designed regulations may cause more harm than good; stifle innovation, growth, and job creation; waste limited resources; undermine sustainable development; inadvertently harm the people they are supposed to protect; and erode the public’s confidence in our government.3. The government can regulate monopolies through: Price capping - limiting price increases Regulation of mergers Breaking up monopolies Investigations into cartels and… Indeed, the laws prohibiting such sales benefit virtuous shop owners because they prevent their less scrupulous competitors from gaining the advantages of increased market share. 33 See, e.g., American Bar Association, Section of Administrative Law and Regulatory Practice, “Improving the Administrative Process: A Report to the President-Elect of the United States” (2016), at pp. Between elections, choices on controversial subjects are made through presidential leadership, voting in Congress, court rulings on specific disputes, and “checks and balances” among the three constitutional branches. You mu… Yet regulatory agencies effectively do just that. http://www.nam.org/Data-and-Reports/Cost-of-Federal-Regulations/Federal-Regulation-Full-Study.pdf, 9 http://mercatus.org/sites/default/files/Coffey-Cumulative-Cost-Regs-v3.pdf. This means that Congress gets credit for popular regulatory goals while the often-unpopular rules are blamed on “unelected bureaucrats.” This criticism often comes not only from citizens and businesses but also from the legislators who voted for the regulatory statutes in the first place. A smarter regulatory process can ensure that regulations enhance societal well-being, rather than provide an advantage for powerful interest groups. 24 John D. Graham and Paul R. Noe, “Beyond Process Excellence: Enhancing Societal Well-Being,” in Achieving Regulatory Excellence, Cary Coglianese, ed., Brookings Institution Press, Washington, DC (2017), p. 73. But it does not follow that more regulation is always better, and in recent decades we have been seeing steadily more federal regulation (though alongside deregulation of certain industries like airlines and telecommunications). 25 Susan Dudley, “Reforming Regulation,” Reviving Economic Growth: Policy Proposals from 51 Leading Experts Brink Lindsey, ed. The United States is more bitterly divided politically than it has been for decades. But regulatory costs are born outside the government, by those who must comply with the rules, their customers, and their employees. 2014. https://regulatorystudies.columbian.gwu.edu/utility-humility, supra note 41. economic study by the Manufacturers Alliance for Productivity and Innovation, angry response from consumer and environmental groups. The IRS collects compulsory taxes, and the revenues are spent on desired public functions such as parks, roads and other infrastructure, schools, law enforcement, homeland security, and scientific research, as well as welfare and social insurance programs such as Social Security, Medicare, Medicaid, food stamps, and unemployment assistance. One major issue remains, that of setting government-wide regulatory priorities. 36 John D. Graham and Paul R. Noe, “Beyond Process Excellence: Enhancing Societal Well-Being,” supra note 24, at p. 72 – 87. As a result, regulation tends to get “captured” by well-organized interest groups acting to maximize their own well-being, often at the expense of broader society. For example, drug regulation may delay the introduction of new, life-saving pharmaceuticals. It also can address widespread social discontent at the ability of insiders to gain at the expense of outsiders. Regulation should not be the default option for policy makers: the policy option offering the greatest net benefit should always be the recommended option. For example, large, established interest groups, such as large companies and trade associations, environmental groups, trial lawyers, unions, and state, local, and tribal governments, generally have much better access to legislators and regulatory officials, and can influence how regulations are designed and enforced. Decrease in fixed asset expenditures - In addition, the costs associated with regulation prevent a company's ability to invest in plants and equipment. Government regulations are rules a government puts in place to restrict and control people’s behavior. Insofar as regulators are concerned about results, the yardstick tends to be whether they are criticized by elected officials, interest groups, or judges. The report draws on 23 case studies of industry self-regulation agreements which are based on materials provided by governments, businesses, civil society and other experts. A judicially enforceable benefit-cost test is needed because the status quo is inadequate for many reasons, including the institutional limitations of the agencies and OIRA (such as bureaucratic turf battles, failure to utilize both internal and external expertise, bias, and the mismatch between the vast volume of regulation and OIRA’s shrinking resources), as well as political dysfunctions (including inconsistent support for OIRA by varying administrations, interest group rent-seeking, and presidential electoral politics).36 Scholars have shown that the courts are quite capable of competently reviewing agency use of benefit-cost analysis.37 Indeed, benefit-cost balancing is so fundamental to rational decision making that the courts already have shifted toward requiring agencies to do more good than harm, even in the absence of Congressional action.38. My reading of the bottom line: the burden of federal regulation has grown substantially over the past three decades, with real costs to U.S.-based manufacturing, and continues to grow. While regulations may be costly to businesses, there are a number of reasons why we, as a society, should embrace government intervention and regulations when they lead to socially beneficial outcomes. If regulations focus on promoting public goods and preventing public bads, rather than serving as a forum for special interests and partisanship, the regulatory system can address the needs we have in common rather than divide us. Since its creation over 36 years ago, OIRA has lost over half its staff (from 97 to about 47), while the staff of the regulatory agencies has almost doubled (from 146,000 to 278,000).35 Increasing OIRA’s resources commensurately could improve agency analysis and regulatory outcomes. RPC validated costs and benefits of new regulation, and links to RPC opinions developed under the March 2015 better regulation framework. 44 http://democracyjournal.org/magazine/31/capitalism-redefined/, supra note 40. GOVERNMENT POLICY MAKERS 1. But when you look at most regulations that have been approved and are being considered, they are actually common sense regulations that most people support . In the Obama administration it has been seventy-two each year. Thus, talent and energy get channeled into lobbying for favorable government treatment (a zero sum game at best), rather than into entrepreneurial experimentation and innovation that leads to growth and prosperity. In the following pages, we attempt to show how regulation can be reformed to achieve its valuable goals more thoroughly, more effectively, and at lower cost. Regulation can sometimes create new industries to help other businesses stay in compliance. Blog Post by While some policymakers promote regulation as a way to reduce risk to consumers, the potential for While there are many highly specialized types of government regulation on businesses in the U.S., some broad categories apply across most if not all areas of business. These are industries that have the potential to do real environmental damage if not properly regulated. Susan Dudley, “Make Independent Regulatory Agencies More Accountable to the Public,” Forbes 2017. https://www.forbes.com/sites/susandudley/2017/05/09/make-independent-regulatory-agencies-more-accountable-to-the-public/. These costs are like stealth taxation, and because they are assumed to fall on businesses (even though individual consumers and workers ultimately bear them), regulatory tools may seem preferable to direct spending programs for accomplishing an agency’s policy objectives. The cost burden of new regulation must be fully A well-regulated medical marijuana program results in many social benefits. Interventions in complex systems that are not completely understood are fraught with risk. The potential gains of regulatory reform are substantial. Global governance structures that reduce competition among regulators will quash healthy differences that permit experimentation and learning.43. Before 2017, the regulatory norm was the perennial addition of new regulations.Between 2001 and 2016, the Federal government added an average of 53 economically significant regulations each year. The government appointed regulators who can impose price controls in most of the main utilities such as telecommunications, electricity, gas and rail transport. They rightly pointed out that the study did not attempt to calculate whether the public benefits of regulation have outweighed the costs to industry. Diana Furchtgott-Roth, "Regulating To Disaster" (2012). The motivation for each of these activities is to maximize economic returns, but the unintended consequences of profit-seeking and rent-seeking differ dramatically.13, As Adam Smith famously wrote, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”14 “Profit-seeking entrepreneurs continuously move resources to more valuable uses, and in the process create economic growth and development,” which unintentionally leads to “socially beneficial consequences.”15 More importantly, in a competitive market environment, those returns that initially accrue to a successful entrepreneur are quickly competed away by other profit-seeking entities. In economic theory a new regulation should be subject to a general economic test: • Does a proposed regulation maximize the net benefits (i.e.. Benefits minus Costs)? These regulations may lead to some benefits, but is it really fair to ask low-income families to pay a larger share of their income for these benefits than wealthier families? Regulations and rules have benefits as well as costs. This can disadvantage everyone else—ordinary consumers, taxpayers, workers, small businesses, the middle class, and the poor. Harvard University Press (March 15, 1995). 3. For example, in a classic analysis from the 1980s, Jorgensen & Wilcoxen simulate the long-term growth of the U.S. economy with and without environmental regulation and conclude that “the cost of environmental regulation is a long run reduction of 2.59 percent in the level of the U.S. gross national product.”53 More recently, McGrattan and Prescott find that higher regulatory costs contribute to lower total factor productivity (TFP) and GDP.54 Dawson & Seater estimate that regulations reduced gross domestic product (GDP) growth by 2 percent per year between 1949 and 2005, leading to an accumulative reduction of $38.8 trillion in GDP.55. They often pursue their specific mission with zeal, but this results in too little regard for other legitimate goals, such as a strong and growing economy. There should be retrospective review to streamline and simplify existing rules and to remove outdated and duplicative rules. Regulations can limit or prevent: Demerit goods (alcohol, drugs, smoking) Goods with negative externalities (burning of coal) Abuse of monopoly power. Government, NGOs and campaign groups are working rigorously to ensure Indian women manage their periods in happy, safe and confident ways. First, in deciding whether to regulate, agencies should determine whether there is a material failure of private markets.26 This is because competitive markets are not only very efficient at allocating scarce resources to their best use, but in encouraging entrepreneurial activity and innovation. Those areas, and their accompanying regulatory agencies, include: 1. 37 See, e.g., Caroline Cecot and W. Kip Viscusi, “Judicial Review of Agency Benefit-Cost Analysis,” 22 George Mason Law Review 575 (2015); Jonathan S. Masur & Eric A. Posner, “Cost-Benefit Analysis and the Judicial Role,” University of Chicago Law School, Coase-Sandar Working Paper Series in Law and Economics (Feb. 7, 2017). 3 Paul R. Noe, “Smarter Regulation for the American Manufacturing Economy,” supra note 1. On car safety and efficiency, 87 percent of Americans (and 82 percent of Republicans) say the same. To implement spending policies, presidents send proposed budgets each year to Congress, and Congress must both authorize activities and appropriate necessary funds to implement them. Small, pioneering companies cannot afford the costs and time required to get approval of innovative new products, and often sell out to larger companies with the expertise and resources to obtain government approvals. It protects the safety and health of the general public as well as the environment. GOVERNMENT POLICY MAKERS 1. Government Regulation: Costs Lower, Benefits Greater Than Industry Estimates Overview Regulatory requirements to protect the environment, workers, and consumers often lead to innovation, increased productivity, and new businesses and jobs. Full Record; Other Related Research; Abstract. An analysis of costs and benefits of government regulation dealt with the various types of regulatory costs to society, alternatives to regulatory methods, and the need for coordination of regulation. Precisely because of its importance, regulation deserves constructive criticism and earnest efforts at improvement. Second, because the goal of regulation is to enhance, not undermine, societal well-being, regulatory agencies should consider important trade-offs and design regulations to do more good than harm. 40 http://democracyjournal.org/magazine/31/capitalism-redefined/, 41 Susan Dudley, “The Utility of Humility,” The George Washington University. Government regulations by definition are rules that we all must follow or face penalties. When important effects of a free market transaction (such as environmental pollution) are not captured in the decisions made by buyers and sellers, government should examine the underlying cause of that “market failure” and seek to address it by exploiting, rather than disrupting, the “marvel”27 that is the market-based economic ecosystem.28 For example, are property rights poorly defined, or could economic incentives, such as an emissions tax, internalize those costs without inhibiting innovation? However, evidence suggests that a smarter regulatory approach targeted at problems that cannot be solved by other means could have enormous benefits for current and future generations. benefits over government regulation for consumers, producers , the government, and the economy as a whole. Government regulation affects the financial services industry in many ways, but the specific impact depends on the nature of the regulation. fedsoc.org Your business entity, such as a sole proprietorship, limited liability company or corporation, determines which taxes you have to pay and how you pay them. On the other hand, regulatory actions often have come at a cost that exceeds their benefits and sometimes actually have been counterproductive. Regulatory mandates often are very costly—for example, for expensive pollution control equipment, extensive testing of new drugs, and collection of detailed information from consumers. The deregulatory agency would employ the additional time, insulation, and expertise that administrative agencies possess in the service of deregulation. Such regulations can limit pollution, increase worker safety, discourage unfair business practices, and contribute in many other ways to a safer, healthier, more productive, and more equitable society. This leads to regulatory agencies advancing the commercial or political concerns of the most well-organized special interests (which may be, but are not necessarily, regulated parties).19. Today, government consumes or directs nearly half of the economy, with direct government spending alone reaching on the order of one-third of U.S. gross domestic product.4 Regulatory costs, while off-budget and less visible, are no less real.5, At the federal level alone, there are over 70 federal regulatory agencies, employing hundreds of thousands of people to write and implement regulations.6 Every year, they issue about 3,500 new rules, and the regulatory code now is over 168,000 pages long.7. It is then up to the larger company whether to market the new product or crush it. We would never allow the spending agencies to collect their own taxes from the public, in whatever amounts they feel they need. Both types of programs may claim dramatic benefits from eliminating disease, or crime, or pollution, but such claims often lack credibility and accountability. Susan Dudley & Jerry Brito, "Regulation: A Primer," GW & Mercatus Center (2012). But the most costly regulations are those designed to improve air quality, reduce energy consumption, and ensure safe working conditions – goals the public generally favors. 29 See, e.g., John D. Graham and Paul R. Noe, “A Reply to Professor Sinden’s Critique of the ‘Cost-Benefit State,’” RegBlog, University of Pennsylvania Law School (Sept. 27, 2016); Jonathan S. Masur & Eric A. Posner, “Against Feasibility Analysis,” 77 U. Chicago L. Rev. However, there are a few general taxes that all business owners can anticipate paying, regardless of their business structure: 1. Consumers probably never even noticed. 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