In Michigan, you need a license to cut hair, roof a house or operate a polygraph machine. But you need no training at all to write the laws that govern those professions.
Elected officials make important decisions for their constituents, appropriating billions of dollars of taxpayer money and designing state programs that affect millions of people. Lawmakers would do well to learn and remember basic economics.
Most people are familiar with the laws of supply and demand. If you lower the price of bread, sales will likely go up. If demand for a product exceeds the supply, prices will likely rise. Remember the toilet paper craze during the Covid-19 lockdowns? Prices rose, stores began rationing purchases and the state warned against stockpiling.
Regulations can also drive up the cost of an item. Families were horrified when the cost of eggs surged last year, triggered by a combination of a cage-free law and avian flu shortages. As Jarrett Dieterle wrote, a dozen eggs cost $6.29 in Royal Oak in January 2025. Just over the border in Ohio, with no cage-free mandate, eggs went for less than $4 a dozen.
There is a lot of discussion in Lansing today about shortages in the housing market. The cost of housing keeps going up, and young adults must wait longer than their parents did to buy a first home. This isn’t a mystery. Michigan builds homes at half of the national rate because zoning laws restrict development. When supply is restricted, prices rise.
Prices are an important signal in a free economy. If you sell a used car, you want to sell as high as possible. If I buy your car, I want to pay as little as possible. As reasonable people, we’ll reach an agreement.
“The price system works so well, so efficiently, that we are not aware of it most of the time,” wrote Milton and Rose Friedman in their classic book “Free to Choose.”
Yet politicians imagine they can regulate prices better than the market can. President Donald Trump recently called for a 10% cap on credit card interest rates. During the Covid toilet paper shortage, Attorney General Dana Nessel warned retailers against price gouging.
Another economic reality is that incentives matter. Incentives can encourage behavior through rewards and benefits or discourage behavior through fines and punishment. That said, lawmakers should be modest about their ability to mold human nature.
“Economic policies need to be analyzed according to the incentives they create, and not according to the hopes that inspired them,” wrote economist Thomas Sowell. Generous unemployment benefits, for example, can discourage people from seeking full-time work.
Which leads us to the law of unintended consequences. Every policy has tradeoffs and creates new incentives, so policymakers must work to imagine second-order effects. Scholars argue that the 2007 subprime mortgage crisis was fueled by government policies that encouraged home ownership among lower-income families. A well-meaning policy had disastrous consequences.
Elected officials must clear one major hurdle when running for office: convincing voters to hire them. And that’s meaningful. The push-and-pull of an election campaign usually gives voters a good sense about the candidates.
So during campaign season, pay attention to the economic literacy of the people running. Do they understand economics or do they entertain magical thinking?
Michael J. Reitz is executive vice president of the Mackinac Center for Public Policy.
This article originally appeared on The Detroit News: Before making laws, policymakers must learn economics | Reitz
Reporting by Michael Reitz / The Detroit News
USA TODAY Network via Reuters Connect
