President Donald Trump pledges to dismantle much of the regulatory state – the amalgam of federal rules, directives and warnings that, aside from advancing many well-known policy goals, are also alleged to have reduced the competitiveness of the U.S. economy. His objective is to cut government regulation by about 70 percent. It will be a tough target to reach.
But Trump seems determined to try.
Last week, he signaled an overhaul in the Dodd-Frank financial regulation regime adopted after the 2008-09 financial crisis. He has also frozen regulations adopted in the Obama administration’s final months and issued an executive order requiring agencies to kill two regulations for every new one they propose (a regulation to curb regulation!). Consistent with this, agencies would be prohibited from promulgating rules that impose regulatory costs on the economy. Higher costs stemming from new regulations would have to be offset by lower costs on existing regulations.
Whether this works in practice remains to be seen. There certainly will be legal and political challenges to Trump’s changes, which would affect regulations on everything from global warming to financial advisory services.
We are dealing here with a basic transformation of how the American economy works. Before World War II, some industries (railroads, banks, and electric and phone utilities) were regulated, and in the Great Depression, Congress had embraced a minimum wage and protection for unions. But there was little environmental, social or health regulation. Other areas of current regulation (racial and sexual discrimination, finance, and worker safety) were either skeletal or nonexistent.
Now regulation is pervasive. It touches air and water pollution, pensions, vehicle fuel efficiency, the internet (“net neutrality” rules), home mortgages, political campaign contributions … and much more. The annual outpouring of new rules and proposed rules is mind-boggling. In fiscal 2015, the Federal Register – containing final and recommended rules – totaled 80,260 pages, says the Competitive Enterprise Institute (CEI), a market-oriented think tank.
The popularity of regulation is no mystery. Many regulatory goals (say, clean air and water) enjoy broad public support. Through regulation, government can promote these activities without having to raise taxes or increase budget deficits. The costs of regulation are largely invisible and are shifted mainly to consumers in higher prices, workers in lower wages or companies in reduced profits.
The size of those costs remains controversial. It’s not large, says the White House’s Office of Management and Budget (OMB). In studies, it has consistently found that regulations’ benefits dwarf the costs. For 2015, OMB estimated that the benefits for 21 new and major regulations totaled $45 billion compared with costs of only $6 billion. The regulations included a rule on food labeling from the Food and Drug Administration and a rule affecting construction workers from the Occupational Health and Safety Administration.
Some economists and interest groups put costs much higher. At CEI, Wayne Crews Jr. found that all federal regulations cost $1.9 trillion in 2015, an amount about half the federal budget. Although Crews didn’t estimate regulations’ benefits, his higher cost figure suggests a substantial regulatory burden. Other studies have even higher estimates.
Just what explains the gap between OMB and private studies isn’t clear. One possibility is that the OMB study covers only about one-fourth of the major regulations issued in 2015, according to the Regulatory Studies Center at George Washington University. The regulations studied by OMB may have better cost-benefit relationships than the other rules.
All these nuances may be lost in the looming debate over regulation. Trump has blamed overregulation for slow economic growth. Too many restrictions and mandates have been imposed on too many industries, restricting their ability to expand; and regulatory costs undermine companies’ productivity by inflating firms’ overhead. Deregulation is one answer.
To this, Democrats can be expected to respond: Deregulation is less an economic policy than a Trump giveaway to his corporate supporters, who would be enriched by having to comply with fewer public-interest regulations. Trump’s policies would aggravate income and wealth inequality, rather than spurring faster economic growth, and expose millions of Americans to corporate abuses.
Life being complicated, there’s some truth to both positions. It would be nice if Trump and his critics could find some common ground: Democrats admitting that regulations have been carelessly overused; Republicans conceding that the regulatory state isn’t going away. It needs to be governed better, neither abused nor abolished.
Robert J. Samuelson is a columnist for Washington Post Writers Group
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