We know that regulation costs – big-time, in fact. My colleague Wayne Crews estimates the cost of regulation to the American economy as around $1.8 trillion a year (and these costs are mostly hidden, a “costberg” as he puts it). Yet these costs aren’t just borne by regulated industries or landowners, they come down to us all at the household budget level.
In fact, the Institute of Economic Affairs in London has just pointed out in a new report that these costs weigh perhaps heaviest on the very poor. The normal reaction from the left to poverty is to demand more transfer payments to the poor in the form of welfare benefits. Yet deregulation could provide a substantial benefit to the poor at no cost to the public purse. Some examples from Britain:
- Housing costs are a huge problem for the poor. Over the last 50 years, incomes before housing costs for the least well off have doubled. Incomes after housing costs, however, have risen by only 60 per cent. The evidence suggests that high housing costs are largely policy driven.
- The poverty lobby’s response to this problem is to propose extending housing benefit. It seems oblivious to the huge problems that this policy would cause. Increasing housing benefit would exacerbate the already very serious poverty traps as the benefit is withdrawn and increase housing demand (and therefore prices). It is a myth that our population density justifies the UK’s restrictive approach to land-use planning. Reforming the planning system should be the focus of policy.
- Liberalisation of the planning system could reduce housing costs by around 40 per cent. However, planning reform needs to run with the grain of the market so that development decisions reflect the value of environmental amenities. This would involve localisation of planning responsibilities and tax-collecting authority.
- Food prices in the UK are considerably higher than in comparable EU countries. Again, restrictions on building are an important aspect of this as they reduce the productivity of the retail sector and reduce competition. Further reductions in food prices could be achieved by liberalisation of the Common Agricultural Policy. A conservative estimate suggests that policy changes could bring about a reduction in food costs of about 25 per cent.
- Policy reforms in other sectors could also bring about considerable benefits for the least well off. Specifically, childcare costs are very high in the UK compared with other European countries despite high levels of government subsidy; energy prices are raised by incoherent environmental policies; and many indirect taxes are especially targeted on products disproportionately consumed by the poor. It would be perfectly feasible to pursue the government’s carbon- reduction policies in ways that increased energy bills by much less.
- Overall, a market-oriented anti-poverty policy could lead families to be up to £750 a month better off. There would also be scope for substantial decreases in taxation on the less well off because of substantial savings in benefits such as housing benefit.
Taking the very crudest measure (overall cost of regulation divided by households), regulation is costing American households thousands of dollars each year. Deregulation would be a cost-free stimulus measure and, as the IEA suggests, an efficient anti-poverty policy. Yet no-one in DC, with a few honorable exceptions, is focused on the regulatory problem right now. That needs to change.