Study: Even Well-Intentioned Regulators Do More Harm Than Good

It’s both common and accurate to point out that many people who go into government are control freaks motivated by the desire to exercise power over others, or else driven by self-interest to profit from control of the reins of government. But a new study points out that even when government officials are sincere and intend to make the world a better place, they often cause more harm than good.

Regulations Designed To Protect the Public Can End Up Restricting Opportunity

The Protection Paradox: Good Intentions, Bad Market Outcomes, published August 20 by Soriya Chhe and Marin Murdock of the Competitive Enterprise Institute (CEI), emphasizes that as government goes about the business of providing services and exercising authority, any given American should expect that “the government will respect (and ideally protect) her rights to life, liberty, and property. And if the government falls short of fully protecting those rights, it should at least refrain from undermining them.”

That’s reasonable to expect. But it’s not what government often delivers. As Chhe and Murdock write, in theory, “regulatory bodies exist to reinforce a system in which individuals are free to work, innovate, and build businesses within a fair and stable framework. But in practice, a paradox often emerges. Regulations designed to protect the public can end up restricting opportunity, suppressing innovation, and hindering the very individuals they are meant to serve.”

The authors call this the “Protection Paradox: well-intentioned government interventions create structural barriers that entrench incumbents and hurt the public by squeezing out smaller competitors.”

For those of us who spend a lot of time scrutinizing government rules and the people who make and administer them, good intentions can become increasingly difficult to assume. Politicians and bureaucrats more often seem motivated by personal interest, whether that’s lust for power, career advancement, or accumulating wealth by leveraging their positions in government. Behavior seems best explained by the Public Choice school of economics, which assumes that political participants are as driven by self-interest as anybody else.

But many people want to give so-called public servants the benefit of the doubt and assume that government actions are intended to benefit the country. Chhe and Murdock underline the fact that good intentions aren’t enough, and that even sincere regulatory efforts can do enormous harm. They note that “regulatory frameworks can unintentionally operate as barriers to competition rather than guardians of public health and safety” and even serve to “coerce outcomes and suppress dissent.”

Red Tape Limits Competition and Muzzles Dissent

The authors highlight Occupational Safety and Health Administration (OSHA) rules that are supposed to govern innovations in mobile elevating work platforms (MEWPs), which include scissor lifts, boom lifts, and similar equipment. In the name of safety, OSHA so heavily regulates proposed modifications, requiring that they be certified through designated pathways, that many small companies are effectively excluded from the market. “Certification costs often reach thousands or tens of thousands of dollars per model,” they write. “For an invention intended to be used across different lift models, these costs multiply quickly.” That hurts the excluded firms, and it kills innovations that could improve safety.

Chhe and Murdock also call out the Securities and Exchange Commission (SEC) for the lack of due process in investigations: “Unlike criminal proceedings, there is no right to appointed counsel in SEC enforcement actions. Defendants must either retain private legal representation (often at significant cost) or attempt to navigate a highly technical regulatory system on their own.” When individuals and businesses come under attack from SEC regulators, defense “costs accrue rapidly, often at the precise moment when the defendant’s assets or business operations may already be under stress from the investigation itself.”

Defendants often settle with the SEC just to escape the burden of battling a federal bureaucracy with essentially unlimited resources. But until this year, the SEC “required settling defendants to agree not to publicly deny the allegations against them or suggest that the SEC’s claims lack a factual basis.” That rule was rescinded in May—in part because of free-speech concerns—but could be reinstated at any time.

The High Cost of Red Tape

Chhe and Murdock don’t try to quantify what these regulatory barriers and intrusions mean for Americans beyond those directly strangled by red tape, but the costs can be high. In 2024, addressing the rising housing costs and constrained supply of recent years, Bryan Caplan, a professor of economics at George Mason University, observed: “Before the rise of stricter regulation in the 1970s, the textbook model worked well: When demand pushed prices above the cost of production, more construction drove prices back down.” But as government rules grew more intrusive, it has grown more difficult for supply to meet demand. “Strictly regulated urban areas like New York City and the Bay Area have high prices and low construction, while more lightly regulated areas like Houston and Dallas have much lower prices and much more construction,” he added.

How much do those regulations cost us when we go looking for a place to live? “Regulations at all levels of government are hindering the production of housing,” according to the National Association of Home Builders. “Regulations account for nearly 25% of the cost of a single-family home” and “more than 40% of the cost of a typical apartment development.”

That’s quite the Protection Paradox. Even if we assume the sincerity of the regulatory sales pitch, rules touted as making homes safer instead choke the market, delivering fewer homes at higher prices.

Free Markets Are Better Than Even Well-Intentioned Bureaucrats

As the CEI authors note, even well-intentioned rules can “generate tensions involving constitutional rights, institutional accountability, and the concentration of governmental authority.” They emphasize that this is typical of government intervention in markets. Regulation “centralizes accountability into formal processes that require navigation, compliance infrastructure, and legal expertise.” That limits competition and favors established businesses because “large incumbents are better positioned to shoulder these costs, while small innovators are unlikely to have comparable resources.”

The Protection Paradox, they add, “does not require corruption or explicit capture and is oftentimes driven by a noble purpose.” But the result continues to be reduced competition, higher prices, lost innovation, and suppressed liberty.

The solution is to allow free people to work things out among themselves. The free market, write Chhe and Murdock, is “grounded in competition, transparency, and the dispersed judgment of countless individuals rather than the centralized judgment of a regulatory body.” Even good intentions among government bureaucrats with coercive power are no substitute for cooperation and competition.