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Comment by sdvnwsdf | Hacker News Reader

Regulation has to increase some expenses. If nothing else it's one more thing on the todo list and time has a cost too.

Note: I'm not saying anything about cost/benefit. It could definitely be true that the benefits are well worth the cost. And it could also be true that a benefit is a lowering of an expense somewhere else lowering overall prices. (which is the thing that is not obvious and need to be explained) But there is a cost that needs to be covered by something. And that cost is usually going to result in increased prices in one form or another.

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I can't believe that I continue reading this on HN. Unless something is a commodity prices are not determined by costs! That really is economics 101.

The funny thing is that this is being brought up again and again as an argument against regulation. You'd think the smart business people would know some economics, so they are either lying or not that smart.

Would it help if the concern were expressed as regulation being a constraint on supply? There’s not really an economic distinction to be made here: If regulations demand all airplanes be painted with an expensive shade of neon pink, on the margin fewer planes can be built for the same capital investment and all else being equal supply will decline.

If the regulations are arbitrary and pointless of course.

OTH if they for instance increase safety longterm you might expect demand for air travel to increase.

Air travel _is_ a commodity though.

Have you read the article? It makes some solid arguments why it isn't. I mean the existence of points programs and all the different fare codes and conditions is a pretty good indication that it isn't.

Some regulations limit prices or price increases, or create a more favorable environment for consumer price negotiation.

Some regulation may lead to negligible higher prices, so it bears asking not just is there an effect, but what is the magnitude of the effect. If minuscule, then we can ignore it.

> Some regulations limit prices or price increases, or create a more favorable environment for consumer price negotiation.

Even these regulations can increase prices, for example by driving market consolidation or reducing price transparency and increasing overhead as people devise convoluted workarounds.

Price controls also have a tendency to create shortages, causing the product to only be available via black markets that carry a risk premium (and so high prices).

> Some regulation may lead to negligible higher prices, so it bears asking not just is there an effect, but what is the magnitude of the effect. If minuscule, then we can ignore it.

A regulation setting a maximum price of a trillion dollars would have negligible negative impact because nobody would charge that much anyway, but it would also have negligible positive impact because nobody would charge that much anyway. You can obviously pass a regulation that does nothing and then it does nothing.

Customers prefer lower prices all else equal, so that's what they'll choose when all of the options are on the table. Prohibiting certain things only takes options away. If they weren't the lowest cost options to begin with then prices may not increase, but then you have to ask why anybody would have chosen that to begin with over the thing that costs less. If the thing you prohibit was the lowest cost option, prices go up.

> Even these regulations can increase prices, for example by driving market consolidation or reducing price transparency

Or (as they occasionally do) they can achieve the complete opposite. Making such an argument (from both sides) completely worthless without additional context.

The trouble here is that context is expensive. You have to not only look at what the rule purports to do but also what it actually does in practice, including the second and third order effects.

But the people who have time for that are the incumbents, so you end up with rules that on their face are supposed to help the little guy and in actual fact do quite the opposite.

Here's an example. It's a common trope that consumption taxes hurt the poor because they spend a higher proportion of their income so we need to use income tax. But if you look at the numbers, the upper middle class spends the large majority of their income too. You don't get to people who only spend a small fraction of their income until you're into the investment class -- and those people don't pay income tax either. Partially because of transfer pricing and things like that, but at root because they reinvest whatever they don't spend and business expenses are tax deductible. So the claim is BS.

Meanwhile the huge advantage of a consumption tax is that it's hard to avoid. What rich people actually do when there is an income tax is minimize their "income" and buy on credit, which in many cases lowers their taxable income even more if the interest is tax deductible. Whereas with a consumption tax, if you want that yacht you're paying the tax whether you took out a loan for it or not.

So the powerful put out this propaganda that the tax they would actually have to pay is the one that hurts the poor and the one they have many ways to avoid is the one we need to use. But ordinary people aren't all that familiar with how rich people accounting works, so they buy that theory and fight against a change that could shift more of the tax burden from the middle class to the rich. There are also a bunch of things about how the income tax on capital gains benefits not only rich investors but huge conglomerates, on and on.

So unless you have some way to counter this information asymmetry -- and as yet this appears to be an unsolved problem -- the default presumption has to be that a given regulation is inefficient or corrupt. Because most of them are.

Currently, when you carry out task Foo, you perform steps A, B, C and D. Regulation is introduced which says you cannot under any circumstances omit step C.

No increase in expenses.

Let’s label the steps.

1) acquire airplanes

2) acquire pilots

3) plan routes

4) set prices

5) acquire customers

Seems to me regulations that set prices actually save a step.

Even if no one is skipping step C, the enforcement mechanism requires auditing. If there exists an alternative to step C, is it compliant with the regulatory requirement? The regulation itself introduces legal risk which needs to be mitigated. So yes, it increases expenses.

Those expenses are on the part of the regulator, which is funded differently. As a society, we may be paying more to say "you must do step C", but as a customer or provider of Foo, there's no change.

No? Entities don't get to write off the cost of being audited, there's a very real expense associated with both documenting the regulated process in a compliant manner and working through the audit process with the relevant regulatory body.

Entirely fair point.

You can be regulated not to do something, for instance if the regulator banned airline loyalty schemes then none of the airlines would have the cost of administering those schemes, or the cost of competing against each other on perks, so the total amount people spent on airlines would go down.

Not always. Some regulations set price ceilings, which is essentially sets a lower prices than the market rate. This leads to shortages, of course, but it is the obvious counter example.

Regulation can drive up certain cost but the whole economic cost can come down at the same time. On the other side you have technology driving down the cost.

Cars are a good example. They've been dropping in price historically as the government adds on more regulation.

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