/  Economics   /  Why Does Everything Cost So Much? – Red Dirt Liberty Report

Why Does Everything Cost So Much? – Red Dirt Liberty Report

It doesn’t matter who you are, your circumstances in life, or your political persuasion: Everyone is dissatisfied with the general expenses of products and services. No matter how old you are, you remember when something used to cost a lot less than it does now. It’s a systemic source of aggravation for all of us.

On the one hand, there are natural changes and fluctuations in the costs of things due to market forces and pressures that are to be expected in open and free capitalist markets. The problem is that it seems so much less likely things will be less expensive – new technology being the exception. As new technology improves in consumer gadgets, prices of older technology do come down in a pretty large way, but it does seem that even with tech gadgets that similarly situated products in the market tend to increase in price over time. For example, the price of a middle of the line smart phone seems to increase over time. And, common everyday items just keep climbing. Price decreases are rare relative to increases.

So why does everything, on average, keep getting more expensive? The most obvious first answer is that the world uses almost nothing but fiat currency – currency backed only by faith. It’s the planned obsolescence of the world’s trading systems. Built right in is the expectation that future currency will naturally and decisively be less than present currency. So, on average, everything doubles in price every 17 or 18 years – in regions where currencies are considered relatively stable. Much faster than that in other regions. In this case, it is assumed that in relative currency values, things cost roughly about the same percentage of your income that they used to. Not entirely true, but all things being equal, that is the assumption.

All things are not equal, though. There are other factors that continually increase what you must pay for things. We are fortunate in that the more open markets are with the least amount of government interference, that growth in wealth tends to outpace loss of buying power. But, things do keep getting more expensive than they should. Government regulation is a tremendous drag on the free market, and because it rarely retracts, it continues to add more and more costs onto the things we buy.

According to the National Association of Manufacturers (NAM), the average cost of regulation for compliance with employment practices is about $19,564 per employee per year. For businesses with under 50 employees, who have less resources to manage these costs, the number skyrockets to over $36,000 per year per employee. It’s very difficult to assign an average cost to goods manufactured for employment regulation compliance, but if we consider the average employee is earning the median US household income of $59,000, then the amount paid for these employees increases the cost of their household income by about 32%. The costs to all Americans in the goods they buy is in the trillions of dollars.

This does not include the costs of other regulations governing a huge host of compliance issues. A study by the Competitive Enterprise Institute in 2016 estimated that the cost of compliance with all regulatory issues in the US was $1.885 trillion. It’s interesting to note that this number is greater than the amount of all federal income taxes collected. Americans are paying more for federal regulations on businesses than they pay for federal income taxes. The greatest of these expenses fell into three major categories – $399 billion for economic regulations, (governing things like market entry and price controls), $386 billion for environmental regulations, and $316 billion for tax code compliance.

This $1.885 trillion could also be thought of as a drain on wealth, in other words buying power. This number represents over 11% of the US GDP. While the left tends to focus on providing economic subsidies to better enable people to afford to live, a much better aid to the poor would be to increase their buying power through reducing stifling regulation on businesses. Imagine reducing the costs of goods and services by 11% and the impact it would have for the poor. It’s less of a problem of giving the poor more money to buy things, but more of a problem of making things more affordable for the poor so that their money goes further and giving them more money to spend by increasing their wealth.

Most of the world has been tackling the fight against poverty all the wrong way. Not only does reducing regulatory drags on costs make things more affordable to people with fewer economic resources, but it also increases overall wealth and buying power. The impact of decreasing the costs of things by 10% or 11% is narrowly focused on immediate consequences, but then there is the impact of greater wealth flowing into the economy that begets even greater wealth still. If you truly want to help the poor and have fewer complaints about how much things cost, then a great starting point is the reduction of regulations.

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Danny Chabino

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