Regulation Versus Taxation: Smut Edition

by Will on March 12, 2011

It so happened that recently I had to spend a certain amount of time reading the Oakland municipal and planning codes. There are many ridiculous sections of these documents that I would like to quote at length here, but I fear that this would make for a dull exercise. One of the dramatic turns in the saga of the planning code is the regulation of smut peddlers: businesses providing “adult entertainment” are not allowed near the residential zones, within proximity of churches, colleges, or libraries, or within 300 feet of any other smut peddler (as measured from the center of one store to the center of the other!), among other requirements.

My sense is that the smut industry is in decline anyhow: it appears the independent smut peddler of old is disappearing, replaced by chains that take advantage of returns to scale. But put that aside! Imagine a world like the one ten years ago or more, where there was still good money in pushing brown-bagged materials to antsy men with their hats pulled low.

The implication of a regulation like the one Oakland has is that fewer smut peddlers will set up shop than would occur sans restriction, and that those that exist will be further from population centers than otherwise. This in turn suggests that the individual peddler would be able to charge higher prices for his smut, so his customers will pay more. This looks very much like what would happen if the city of Oakland had simply placed a tax specifically upon the sale of smut, except that in that case the economic rents — the difference between the sale price of the smut, and the cost of bringing it to market — would be collected by the city of Oakland, which could then lower its other taxes or provide more services to its residents. As things stand, it is the smut peddler himself who collects the economic rents. The smut peddlers already in business benefit from the regulation and are likely to lobby for its maintenance, creating a barrier to any future attempt to revisit the question.

Liberals tend, I think, to be too quick to welcome regulations to correct problems, when changes to tax policy would often produce more just results. Instead of regulating how much sugar or salt can be in food, why not just tax sugar and salt, and allow producers and consumers to respond to the changed incentives? The corresponding failure of conservatives is to reject all proposed taxes out of hand, making regulation often the only feasible remedy.

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