In the Declaration of Independence, the Founding Fathers envisioned a government that protected the right to life, liberty, and the pursuit of happiness. They likely did not imagine a government has the power to protect people from the supposed dangers from raw milk, texting while driving or alcoholic energy drinks, or to mandate that people buy health insurance. Stepping in and regulating the free market is an inappropriate role for government, and it does more harm than good.
Regulation is bad for consumers and small businesses. Some argue that regulation is needed to protect consumers, but in reality, it hurts consumers more than it helps them. Regulation is a form of protectionism, and it tends to benefit regulated industries at the expense of consumers.
Large, politically-connected businesses often use the government to drive the smaller companies out of the market. Susan Dudley, Director of the Regulatory Studies Center at George Washington University, explains:
It’s ridiculously expensive. The cost of complying with regulation in the United States is $1.8 trillion each year, according to a recent report from the Competitive Enterprise Institute. Regulatory compliance represents a hidden tax on U.S businesses, and it is passed along to consumers in the form of higher prices.
If businesses didn’t have to spend so much to comply with government regulation, then they could afford to hire more employees. If the government didn’t impose such job-killing regulation, then the U.S. economy would probably be in much better shape than it is now.
It fuels the growth of government. Regulation causes government to grow dramatically. When the government passes new regulatory policies, it has to expand or establish agencies to enforce them. We are all better off when the size and scope of government is limited. If policymakers were serious about growing the economy, then they should support policies that reduce dead-weight loss, keep tax burdens low, and don’t get in the way of business.
Government tends to make problems worse. When government officials step in and regulate the free market, they cause new problems. As Nobel Laureate Milton Friedman remarked, "I think the government solution to a problem is usually as bad as the problem and very often makes the problem worse." For example, federal subsidies for fossil fuels lead to more carbon pollution. If the government hadn’t intervened in the first place, then climate change wouldn’t be the big problem that we know today.
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