Micromanaging the Economy

Earlier this year, the Biden administration announced a slew of regulatory and legislative efforts which they claim will combat so-called “junk fees” charged to consumers. Ultimately, these actions are just government price-regulation and price-setting by a different name. And the results will be just as bad as they have always proven to be.  

What is a junk fee? That is a good question. According to the Administration, it is “any unnecessary or hidden fees from banks, hotels, and numerous other businesses.” What constitutes unnecessary you might ask? Well, anything that federal regulators decide they simply don’t like.   

Moreover, simply classifying all fees as “junk” misses the point that many of these fees serve the purpose of differentiating the cost of services. Take late fees for example - these fees represent the costs companies bear due to a missed payment. Banning the ability to charge them to the consumer, who failed to pay on time, ultimately requires those who don’t pay late to pick up the tab through higher prices. Additionally, charging extra fees for extra or expedited services (known as variable fees) like faster delivery means those services are prioritized for individuals who are willing to pay for the benefit, ultimately meaning lower prices for those who don’t need to utilize those services.  

Government price regulations always fails  

What’s old has become new again in terms of economic policy. In response to inflation, President Nixon issued price and wage controls in 1971 and again in 1973. The results were disastrous and deeply unpopular. Shortages for basic food staples, gasoline, and other products were felt across the nation. When the controls were abandoned, ordinary Americans were left to pick up the pieces as prices for goods skyrocketed into the late 1970s.  

Conversely, when policymakers abandoned price setting in the 1980s consumers benefited. Look no further than the deregulation of telephone and airline services. Before that point, long-distance calls and airline travel were both prohibitively expensive for many consumers. When government regulations no longer prevented it, new providers were allowed to enter the market, competition increased, and prices fell. 

What about government-imposed fees? 

The government is, however, capable of imposing fees on its citizens. While the administration is quick to point out which fees are illegitimate for businesses, it is at the same time seemingly oblivious to some of the fees which it charges to taxpaying Americans. This is compounded by the innumerable fees imposed at the state and local level. For example, can we expect President Biden to proclaim in the 2024 State of the Union address that the IRS late filing fees, expedited passport, and visa processing fees, or the bevy of other fees the government charges Americans are similarly classified as junk fees? It’s not likely.  

Taking a step back, the fees described above are only the ones that the federal government discloses to citizens. In many instances, it doesn’t even do that. Opting instead for what is known as a stealth tax where the underlying tax levy isn’t disclosed to the consumer.  

Our take  

The executive branch has a very limited ability to meddle in pricing, according to the statutory authority granted to consumer regulatory agencies. But that won’t stop creative rulemaking efforts to try to stretch the law in its favor. If those rulemaking efforts are successful, consumers should expect even more egregious efforts to fix prices from Washington. 

Micromanaging the American economy and imposing price controls and regulations have always yielded disastrous results. To properly provide financial relief to American families, the administration should first address its own policies that are constraining economic growth and competition in the market and work with the business community to understand various pricing practices. 

About the authors

Richard Hartnett

Richard is a former manager on the communications and strategy team.