Veronique de Rugy: Are More Progressives Coming Around on Overregulation?

George McGovern, a prominent liberal during his time, championed many regulations, taxes, and mandates while in office. He believed that they were necessary for the public good, but faced consequences as a businessman unable to meet such demands. Today’s politicians inclined to overregulate could learn from his experience.

In 1988, seven years after leaving the Senate, McGovern took over the Stratford Inn in Connecticut. He gained valuable experience operating a business that he might not have had before, given certain withholding military regulation demands which most firms with experience had acquiesced. McGovern learned firsthand how such mandates and taxes that the market-hardly-experienced policymakers devised did not translate to successful businesses. The inn failed, leaving McGovern with valuable insight into the difficulty that small business owners face muddling through such regulations.

McGovern outlined his observations in a 1992 Wall Street Journal op-ed entitled ‘A Politician’s Dream Is a Businessman’s Nightmare,’ which detailed his ignorance of the cost of regulatory compliance as a politician. His realization that well-intentioned regulations often led to adverse outcomes, dampened investment with taxes, and made it more difficult to innovate or survive in recessions was a significant pivot from his previous ideas.

The marketplace demands a well-functioning market, and institutions like property rights, an effective system of loss and profit, and a fair and stable contract law are needed. Most government interventions become detrimental since they tinker with these institutions and limit freedom, an essential factor for the market to work efficiently.

For instance, compelling companies to provide employee childcare benefits sound great, but interferes in the contractual negotiation process between employers and workers. It forces the employer to decrease wages to afford the added expenses.

Mandating that companies use US-made materials in infrastructure projects subjects factories to burdensome permitting processes that raise costs and increase the time required to complete construction projects. Such expenses can discourage companies from pursuing their goals, which affects the cost of building infrastructures, and such inefficiencies could cause promised projects not to be built.

Excessive government interference in the market affects policy goals like the Inflation Reduction Act, meant to reduce inflation rates by spending $400 billion on green energy. New wind installations have decreased by 77.5% in the third quarter of 2022 compared to the same period the previous year, and solar installations are down 40% due to overregulation, tariffs, and opposition from NIMBYs. Any industrial-policy objectives that politicians pursue, such as the CHIPS Act and its $52 billion in subsidies to build microchips, will face a similar fate since the factories will have to be built in an already overregulated environment, and the administration added mandates such as providing child care, buying American, and ceasing stock buybacks, which may have unforeseen negative effects.

Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, contends that it’s time for politicians to heed McGovern’s epiphany and honesty. Overregulation stifles entrepreneurs, prevents long-term policy goals from fruition, and gets in the way of the government itself.

Veronique de Rugy holds the George Gibbs Chair in Political Economy. You can find more information about her and read features by other Creators Syndicate writers and cartoonists on their webpage at www.creators.com.

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