November 23, 2015
Citizens pay for the mistakes made by government, and it adds up to hundreds of billions of dollars a year. Just 12 poor policy decisions by federal, state and local governments cost the average American household an extra $4,440 annually, according to a new study released today by The Heritage Foundation, a think tank based in Washington, D.C.
In “Costly Mistakes: How Bad Policies Raise the Cost of Living,” Dr. Salim Furth, a research fellow in Heritage’s Center for Data Analysis, examines a dozen policies that impose readily quantifiable costs on the vast majority of American consumers, yet produce few broadly-shared benefits. The U.S. Sugar Program, for example, sets minimum prices on sugar and limits domestic production, while severely restricting sugar imports.
This arrangement, argues Furth, “benefits American agribusiness at the expense of American consumers and sugar growers in poor countries.” He estimates the program costs U.S. consumers $3.6 billion annually—about $29 per household.
Consumers pay far more dearly for federal fuel and transportation policies, Furth reports. The latest round of automotive fuel efficiency standards, for example, increased new vehicle price tags by about 10 percent, costing the average household about $450 per year—leading Furth to peg the standards as “one of the least efficient and most costly means of controlling pollution.”
The Renewable Fuel Standard requiring gasoline to include corn-based ethanol is “a double-whammy,” he says, hurting U.S. consumers at both the gas pump and the grocery store. “By requiring that corn be used inefficiently as fuel, the feds have succeeded in raising the prices of both fuel and food—to the tune of $255 per year for the average household,” the researcher concludes.
State and local governments are “partners in crime when it comes to saddling consumers with higher prices due to unwise policy decisions,” Furth observes. As one example, he cites state rules and regulations that bar car manufacturers from selling direct to consumers and otherwise effectively shield existing care dealerships from competition. This policy adds an extra $2,000 to the price of a car.
State-issued “Renewable Portfolio Standards” also make a dent in their citizens’ wallets, the study finds. These standards require power companies to produce or purchase a set percentage of the state’s electricity from renewable sources. Since most renewable energy sources are not cost-effective, Furth estimates that these requirements will soon cost the average household $110 annually.
Local governments, too, can make a huge difference in a family’s cost of living, primarily because they regulate housing—the single largest expense for most families. “In total,” Furth reports, “Americans pay about $209 billion a year for housing due to local government’s over-regulation of land use.”
That works out to an extra $1,700 annually per household, but Furth notes that these costs are not at all equally distributed. “Rural families and those living in less-regulated cities are largely unharmed [by excessive land use regulation],” he writes, “but those in expensive metro areas are taken to the cleaners, frequently for over $5,000 per year.“Clearly, bad policy choices made at all levels of government have artificially inflated prices on everything from food, to energy, from transportation to housing,” Furth says. “The good news is that policymakers can therefore easily lower Americans’ cost of living simply by discarding special interest policies, like the Sugar Program, and reforming or replacing woefully expensive policies with more cost-effective approaches.”