Fisher Investments Editorial Staff

Local Lessons in Overregulation

By, 05/14/2012

Some regulation is necessary. Runaway overregulating, however, can easily impair consumer choice and economic growth—adding costs, complexity and overall barriers to entry, preventing free-flowing competition. And it seems we have plenty of overregulation in the US, from multiple sources—regulation impeding competition and, ultimately, harming consumers and producers.

Most would likely think first of Federal rules and regulations in this regard. And it seems both parties agree, considering both President Obama’s administration and Republicans have talked up simplifying rules to cut redundancies and unnecessary regulation. And last year, it seems the government took action, slashing fully 171 pages of rules from the Federal Register, reducing its volume by a whopping … 0.2%. After this huge reduction, the code is only 82,419 pages.

It’s a … start? The inkling of a start? But state and local governments add plenty more on top. While there should be little doubt some rules are both necessary and sensible, there are plenty that aren’t.

In most states, barbers and others who cut hair must be licensed by the state. For example, the state of Maryland (among many others) would like you to turn state’s evidence and rat out unlicensed offenders with the gall to offer under-the-table trimmings. Why? The state suggests it’s to promote health and safety and ensure professionalism. Whether these hard-to-tally benefits are attained or not is anyone’s guess. In fact, Maryland’s State Board of Barbers offers a great deal of information on its webpage, but studies showing licensing’s huge societal benefits are conspicuously absent. However, it’s easy to find licensing standards, including passage of a theoretical hair-cutting exam (that’s right)—which requires completion of 1,200 hours of barber training before taking. (A measure of training implying the state believes a bad haircut is 30 times as risky as piloting a private plane, since the FAA requires only 40 hours of flight time.) And this isn’t limited to barbers—some studies indicate roughly one in three American jobs requires an occupational license today. All these are costs, competition restrictions and barriers to entry—later passed along to consumers.

Next consider taxi medallions. Legally operating a taxi in many major cities requires the car owner purchase a medallion. In New York, that runs about a cool million—greatly limiting who participates. That means fewer mom-and-pop cab companies and more major fleets. But it also means fewer cabs overall, reducing competition. Simply, the risk of investing $1 million in a license—not including other costs of doing business—means a host of individuals who might otherwise compete won’t.  In fact, government officials even acknowledge this by capping fares on certain routes. How do businesses respond? Cut back on fare-capped routes, maybe?

Common in major West Coast cities like Seattle, Portland and San Francisco, food carts—mobile eateries whose proprietors often specialize in one type of food—are quite popular. And in many ways, they’re a great example of economics at work. The owners have identified an area in which they feel they have a comparative advantage and move to where it can best be captured. But competition is stiff. And in San Francisco, many food cart owners are facing a new form of competition.

A recent California state law bans food trucks operating within 1,500 feet of any school, on the grounds the students’ diet should be restricted to healthier, cafeteria options—of course, implying cafeteria’s food is either universally or generally healthier than food carts’. And since the law doesn’t apply to stationary restaurants, we presume the government believes food produced in a non-mobile kitchen is somehow safer. (Data, please.) What’s more, this isn’t the only regulation, and it’s not the only city with them.

The conversation globally regarding how best government can aid economies is so bifurcated and polarized many folks seem to have missed obvious opportunities, like cutting restrictive rules with little to no real benefit. Deficits aren’t boosted by regulation cutting—neither is this an austerity plan dismantling social programs some desire.  If the US wants to lead the way along a different course, we suggest it should consider businesses’ total regulatory load and slash accordingly.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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