There are many things wrong with regulations—almost as an
entire category:
·
The definition.
·
The negative economic effects.
·
The beyond the Constitution regulatory tyranny.
As I’ve mentioned before, our founders, when they used the
word in the Constitution—i.e., “regulate Commerce,” and “well-regulated
Militia”—they meant
to make regular—to make sure something can happen regularly,
without blocks or interference. That’s what the founders meant by regulation
interstate commerce.
But in today’s government, regulation means something else:
governmental power to decide when, how, and whether something can happen. It’s
arguable that all government regulation prevents, rather than provides,
regularity of something happening.
What we need is for government—especially government
regulations—to get out of the way, so that what we want to happen regularly,
like commerce, can happen freely.
A Just the Facts article, “The Effects of Regulations on the Economy,” by James D. Agresti, shows how regulation has actually prevented what it claims to be trying to do:
President Trump cuts red tape in ceremony in December 2014 |
A Just the Facts article, “The Effects of Regulations on the Economy,” by James D. Agresti, shows how regulation has actually prevented what it claims to be trying to do:
For example, a 2015 working paper from the Harvard-Kennedy
School of Government found that regulations are likely the main reason why
community banks’ share of the U.S. banking market fell from more than 40% in
1994 to around 20% in 2015. This is because “larger banks are better suited to
handle heightened regulatory burdens than are smaller banks, causing the
average costs of community banks to be higher.” Likewise, a 2016 paper in the
DePaul Business and Commercial Law Journal found that the 2010 Dodd-Frank “Wall
Street Reform and Consumer Protection Act”:
could actually be
enhancing the consolidation of the banking industry, in direct opposition to
its principal purpose—eliminating “too big to fail” banks. While the industry
has intentionally trended towards consolidation in the past, the current
dramatic increase of consolidation of banking assets is likely an unintended
consequence of increased regulation. This consequence comes from astronomical
regulatory costs passed on to community banks, as well as increased capital
requirements that diminish these banks’ competitiveness. Dodd-Frank has
exacerbated this problem, and it will likely result in further increased
consolidation of the banking industry.
What do we keep saying about the unintended consequences of
government interference?
If the government wants to
implement something beyond the proper role of government, not only will
government fail to achieve the stated goals; it will likely do exactly opposite
of the stated goal.
Why isn’t that obvious enough that people would stop wanting
government to interfere?
It’s hard to get data on the negative effects of regulation
on the economy. As Anne C. Steinemann, author of the textbook Microeconomics for Public Decisions, says, it’s pretty easy to create a
cost-benefit analysis that will “produce a desired outcome,” and “it is
practically impossible to predict all the future impacts” of a government
program, “let alone their magnitudes and their probabilities of occurrence.”
An example provided by Agresti compares pro and con arguments. On the
pro side, the Obama administration drafted a report in 2014:
Estimating the costs and benefits of major federal
regulations from 2003 to 2013. It concluded that the costs were somewhere
between $57 billion and $84 billion, while the benefits were much greater at
$217 billion to $863 billion.
Since we were in an elongated recession without the expected
recovery through most of those years, that seems like it could be just a wild
invention to say, “You think this is bad? Imagine how bad it would be if we
hadn’t stepped in.” You can’t exactly “prove” an imaginary alternate universe.
Meanwhile, a 2013 paper in the Journal of Economic Growth found:
The effects of federal regulations on the U.S. economy have
been “negative and substantial.” They estimate that GDP would now be more than
three times larger if federal “regulation had remained at its 1949 level.”
Which is right? Probably the one that coincides with the
principles that lead to freedom, prosperity, and civilization. In other words,
government regulation, which is rule by unelected bureaucratic fiat—or
tyranny—is unable to lift an economy out of poverty and into prosperity. So if
the pro-tyranny side is claiming their interference is creating all kinds of
magical benefits, chances are they’re skewing the data for their purposes or
simply outright lying.
Agresti suggests there are plenty of other indicators to
lead to the conclusion that regulation is a negative on the economy:
A key driver of economic growth plummeted in the wake of two
major regulatory expansions in modern U.S. history. This element is
productivity, and as explained by former Federal Reserve Chair Janet Yellen
(and various other economists with wide-ranging political views): “The most
important factor determining living standards is productivity growth, defined
as increases in how much can be produced in an hour of work.”
The Journal of
Economic Growth study, mentioned above, uses historical data, of which
there is an abundance, and finds
that regulations have “strong and robust negative effects” on
economic growth, and these “results are qualitatively consistent with those
obtained from studies using the various cross-country and panel data sets on
regulation.”
Notably, regulations harm the economy by harming
productivity. What we can see is that federal regulations spiked under
President Carter (1977-1981) and Obama (2009-2017). “In the wake of both of
these regulatory expansions, productivity growth crashed,” as you can see in
the chart:
Chart from Just the Facts |
So, while we don’t have absolute cause-effect proof, there
is plenty of evidence for reasonable people to see the harm government
regulation (which is, almost by definition, over-regulation) does to the
economy.
What we ought to insist on is adherence to the Constitution;
that would give us plenty of evidence that freedom from regulation is good for
the economy. But we haven’t tried that experiment in a very long time. The Congress
has mostly abdicated its legislative authority to the regulatory arms of the
executive branch. And the courts have mostly bowed to the “experts” of those
regulatory commissions.
However, there has been some recent progress from this
administration: the FCC’s net-neutrality repeal, HHS healthcare reforms, EPA
details, some Education Department deregulation. These are actual campaign
promises President Trump made that he is keeping.
There are three ways to accomplish regulatory reforms:
·
Executive orders ending the executive orders of
the previous administration (easiest to do, but also easiest to reverse by a
future administration).
·
Legislation requiring change, and returning
responsibility for lawmaking to Congress, and, in many cases, returning the
judicial functions to the judiciary, instead of leaving all powers in the hands
of regulators to determine law, prosecute, and punish.
·
Reform from within regulatory agencies, which
depends on appointees to champion the goal of deregulation.
·
Adam J. White, writing for the Hoover Institution (in “Trumping the Administrative State”), says, ”2018 will mark the beginning of a
steady wave of agency decisions that will immediately be appealed to federal
courts.” The most high-profile of these
will be filed strategically before courts staffed
disproportionately by sympathetic judges in Washington, D.C., or on the West
Coast. This litigation may come to resemble the lawsuits challenging President
Trump’s immigration and refugee orders: Judges will scrutinize agency actions
much more aggressively than before. The traditional deference by judges to
regulatory agencies’ decisions is unlikely to prevail, and courts will
undoubtedly invoke statements by the president or by his appointees that they
see as undermining the credibility that agencies usually are afforded. (This
will be quite a turnabout after Democrats less than a year ago criticized
President Trump’s appointee to the Supreme Court, Neil Gorsuch, for having
questioned the amount of deference” that courts give agencies.)
Of the legislative option, he says this is “an opportunity
Republicans may not enjoy again for a long time.” And he adds, if they fail to
use it,
It would be disappointing and ironic: Congress’s inaction is
itself one of the main causes of our modern administrative state. By failing to
legislate on the issues of greatest national interest, Congress creates a
policy vacuum that agencies fill unilaterally with regulations. Lawmakers
further compound this problem by failing to reform the antiquated
appropriations process that no longer ties Congress’s oversight of agencies to
its constitutional “power of the purse.”
As for the third option, he makes these suggestions for the
regulatory agencies:
They can unilaterally adopt reforms to promote transparency
and accountability within their own houses. Perhaps the best example of this so
far are the efforts at the Justice Department and Education Department to scale
back their reliance on “guidance” documents, a broad category of agency
pronouncements that regulate the public but that do not undergo even the
minimal procedures for public accountability otherwise required of new
regulations. If these two departments succeed in reforming their own practices,
they could come to be seen by the public (and by judges and legislators) as the
regulatory equivalent of “best practices,” raising the bar for what we expect
of other agencies.
So, we’re at a time when we have at least some reason to be
hopeful.
In his conclusion, White talks about the most lasting
reforms of the Reagan era; they lasted because they became systemic. They
became the expected practices over several administrations. Based on that, he
says,
Years from now, we may find that some of the Trump
administration’s most important regulatory reforms in 2018 were the ones that attracted
the least attention. Executive orders and regulatory repeals announced to great
fanfare are very important; even more important are reforms changing the culture
of modern regulatory agencies, achieved through sustained effort within those
agencies, to little fanfare and no ribbon-cutting.
In one of the announcements, President Trump cut a big red
ribbon, to mean cutting the “red tape.” I hope his commitment to that is real.
And I hope the results will become sustained changes that return us to the
freedom that helps us thrive and prosper.