Burdens on Trade Destroy Wealth, Too

We mentioned earlier that involuntary transactions—such as taxes and stealing—destroy wealth.  By the same token, anything that makes a trade more costly or difficult also destroys wealth.  I gave an example of hiring my neighbor's son to mow my lawn as increasing my wealth, because I'm better off, in my estimation, paying what he charges than doing it myself.  But let's say the government feels the need to get involved in our little transaction. The government might say I need to pay Social Security and Medicare taxes and fill out forms to do so.  It might say I have to withhold income taxes.  It might say I need to pay the boy's health insurance, and accident insurance, maybe life insurance, too.  It might say to him that he can't use his gas mower because it makes too much pollution, so he has to buy a new electric one.  And it might say he can't dispose of the clippings in the garbage can because that overburdens the landfill, but he has to mulch the clippings, which takes longer to do.

All of these rules might, in the abstract, have benefits, but they all also have costs.  To cover the taxes and insurance, the cost of the electric mower, and the extra time it takes to mow, my neighbor's son might have to charge $25 to net the $15 he was getting without any government regulation. And at $25, plus the taxes and insurance I have to pay, plus a bunch of paperwork I have to keep track of, I may say, "Gee, I can do it myself, so no thanks." I'm worse off because I have to spend time mowing when I could have had a mown lawn for $15; he's worse off because he loses the job and gets nothing; so we are both worse off, and wealth is destroyed.  (Oh, and in the meantime, he has bought the new mower, but he no longer has the business he needs to pay for it.)

So burdens on trade destroy wealth just as much as as involuntary transactions do.
Don't get me wrong: I'm not saying all trade should be completely unrestricted and unregulated.  There are plenty of reasons why government legitimately can impose burdens on trade to protect public health, morals and safety. But government interferences with trade impose costs, and they therefore make trade less likely to occur and deprive the traders of the wealth they could otherwise realize. They make society overall less wealthy. Interferences should therefore be kept to a minimum, and they are justified only where the government can articulate a direct public ill from the transaction, or a direct public good from restricting it, such that regulating it is in the common good. If the government wants to prohibit the sale of bread made with poison, it has every right; if it wants to prohibit the sale of day-old bread, not so much.

In any event, government cannot justify imposing burdensome regulations on traders, whether they be young lawn mowers or big corporations, on the grounds that the costs "can just be passed on to consumers," as if there is no net loss to the economy. The consumers who pay the extra amount are worse off by the added costs, of course, but some consumers will refuse to pay, and transactions that would have occurred will now never happen, making sellers and service-providers worse off, too. Regulatory restrictions on trade thus destroy wealth and impinge liberty and prosperity.