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Cataloging Washington's Hidden Costs, Part 3: The Costs of Regulatory Benefits

In the first installment of "Cataloging Washington's Hidden Costs," the topic was loss of liberty; in Part 2, unmeasured economic costs. Regulators assume their regulations create net benefits; here I note that those benefits may really be costs.

Governmental decisions, not just private action, can adversely impact health and safety. The ways risks are best identified, prioritized and society made safer and healthier have not all been discovered by beltway residents. The means to address them all do not necessarily lie within government’s ambit.

The nanny state that believes otherwise is sometimes explicit; other times, it seeks to “nudge” us toward ends that it sees fit. For our own good, of course.

Benefits are best seen as forms of wealth. When “regulation” as a phenomenon removes values like risk reduction, or privacy, or cybersecurity, or safety from the competitive pressures required to advance them, agencies undermine the actual "regulation" that needs to take place in society.

Often what government calls a benefit is not one. For example. Denial of choice on energy efficiency is a cost not a benefit. Such compulsion is a negative, a denial of options. When this happens, regulators are imposing costs.

Complex technologies also require that private risk-management institutions like insurance and liability emerge alongside the innovation itself (consider nuclear energy, homeland security, nanotechnology, biotechnology, financial instruments, cybersecurity).

Government now preempts this needed private risk management in almost every respect, from flood insurance on wealthy seashores to too-big-to-fail financial institutions, to ordinary health care.

The same "wealth" status also applies to information available to consumers, and mandates such as those affecting disparate concerns like online privacy standards and food labeling can backfire. It is irresponsible for government to induce people into becoming overly helpless and dependent on governmental information, and to then claim their interventions are a benefit. Their interventions are a cost.

Net-benefit analysis is oxygen for a philosophy of ever expanding government; concerns that may not necessarily even properly be regarded as public policy questions resolve in favor of expanded state action.

And when they do, they may ignore tradeoff questions regarding the accepted role of government, the extent of other risks created by the regulation, alternatives for which the resources could have been used, the wealth of the nation, the means of financing the reduction in risk, cost-effectiveness, the source of the hazard and countless other factors.

Regulatory benefits therefore have opportunity costs. One could call it “The Costs of Benefits,” and they can be wide-ranging. There are costs of closing doors, distortions of industry structure (like antitrust, telecommunications, electrical grid or cybersecurity regulation) and interference with normal market trajectories and pricing experimentation.

Such regulation can prevent superior pro-consumer, competitive responses to alleged bad behavior, since companies don’t operate in a vacuum. Supposedly beneficial regulation can cause the private firms expected to carry out the regulators' decrees to exit altogether (like small firms dropping health insurance). Regulations can undermine principles of self-reliance, as if these were non-benefits.

It took the emergence of generally accepted accounting principles for large scale human free enterprise to arise in the 19th century. The public sector is decades behind in conveying true costs for endeavors that are compulsion rather than trade-based.

A technocratic cost-benefit approach ignores when command and control undermines actual elevation of safety and health features as forms of wealth.

For more on the costs of benefits, see Tip of the Costberg.

Next Time: The Cost Of Poor Regulatory Processes