Government Barriers to Upward Mobility

A new study out of George Mason University looks at government barriers to upward economic mobility. Economist Steve Horwitz investigates three main factors:

  • Occupational licensing
  • Zoning laws and other small business regulations
  • Regressive taxation
Steve Horwitz
Steve Horwitz

As he explains in the opening of the study,

A common assumption in public policy is that government regulation of the market generally works to protect the poor and disenfranchised. However, such regulations more often have the opposite effect: that is, they benefit the wealthy and powerful at the expense of the poor. The key to understanding this point is recognizing that the regulatory process is not, in general, a pristine attempt to instantiate the public interest. Instead, economic actors see in the political process a means of enhancing their profits at the expense of their competitors, but without meeting the wants of consumers in the process. Support for regulations that create barriers to entry in an industry or occupation may well be couched in terms of the need to protect public interest, but such regulations are often demanded by (a) incumbent producers who wish to acquire monopoly profits by making it harder for new producers to enter the marketplace and (b) consumers whose income enables them to afford higher prices, while the burden is shouldered by lower-income producers and consumers. Such regulations effectively become a regressive transfer of income from the poor to the relatively well-off.

When considering new regulations or eliminating existing ones, policymakers should pay more attention to the regressive effects of government, from the way in which it prevents upward mobility to the way in which some policies and programs burden the poor more than other groups.1

Important observations. Give it a read.