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withdrawn and increase housing demand (and therefore prices).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.
