The fate of government regulation — or deregulation — hangs in the balance. President Trump and his allies have vowed to dismantle much of the government’s regulatory superstructure, arguing that the costs are burdening US business and slowing economic growth. Not so, respond Trump’s critics. They argue that he’s jettisoning crucial environmental and consumer
safeguards, with the savings channelled into corporate profits. Greed reigns, it’s said.
Deregulation is a flashpoint of the Trump presidency. Just last week, the president proposed overhauling the National Environmental Policy Act (NEPA) — a law signed by President Nixon in 1970 requiring government “environmental impact statements” for major building projects such as roads and pipelines. Trump would reduce the projects needing impact statements and impose tighter deadlines for completing them. Environmentalists are sure to oppose some of these proposals.
Trump hasn’t been shy about wanting to squeeze the regulatory apparatus. Early in his administration, he pledged to eliminate 75% of all federal regulations. Later, he signed an executive order requiring that two existing regulations be repealed for every new regulation introduced. Trump has argued that repealing or modifying environment requirements will boost the economy’s growth by speeding up approvals and unburdening the economy of needless paperwork.
Some regulatory cutbacks are well-known. The administration decided to pull out of the Paris climate accord; Congress modified the Dodd-Frank financial services legislation (one change: the definition of “systemically important” bank, subject to more scrutiny, was raised from $50 billion in assets to $250 billion, exempting 32 banks); the Methane and Waste Prevention Rule, which set limits on gas flaring, was repealed.
It’s also true that that the number of new economically significant regulations has slowed appreciably, according to a new study by Andrew Hunter of Capital Economics, a forecasting and consulting firm. In Trump’s first term, 98 have been finalised, well below President Obama’s 175 total for the same period of his administration. (An economically significant change is judged to have an annual effect on the economy of at least $100 million.)
There were some apparent successes. The National Federation of Independent Business (NFIB), a lobbying group for small and medium-sized firms, reported that the share of its members “saying red tape is the single biggest problem” dropped from about 20%, when Trump was elected, to 12% now.
But did these changes spur economic growth? The new report by economist Hunter is doubtful. “Overall, it’s hard to make the case that Trump’s deregulatory agenda has had a meaningful impact on the economy at the aggregate level,” he wrote.
For starters, the size of the regulatory complex stayed roughly the same, Hunter reported. The number of pages in the Code of Federal Regulations — one standard indicator of the size of the regulatory state — barely budged. It was 185,434 in 2018, down less than 1% from the 186,374 in 2017.
One reason for relaxing regulations on banks was to encourage more lending, which presumably would have resulted in faster economic growth. But that didn’t happen, Hunter said. Immediately after regulations were relaxed, lending temporarily surged. “But that jump was soon reversed and … we know that business investment growth has been slowing since early 2018,” he wrote.
Naturally, there is no consensus. The White House Council of Economic Advisers disputes the report. “The reversal of the decades-long trend of the growth of federal regulations is a more notable accomplishment than the Capital Economics report realises,” the CEA said in a statement. “It takes time for federal agencies to identify and replace costly old regulations.”
Where there does seem to be consensus is the difficulty of abolishing existing regulations. The stability of the regulatory state reflects many factors. One is the law. “The process for repealing or amending federal regulations is lengthy, requiring detailed analysis, reviews and public comment periods,” Hunter noted. Another is popularity. Despite much anti-regulatory rhetoric, there is broad support for agencies overseeing the environment, securities markets, drugs, new vehicles — and much more. Americans don’t want “free market” forces to settle all controversial questions; but neither do they want the economy to be paralysed by waves of bureaucratic reports and mandates.
The coming battle over environmental impact statements will remind us of all these rough realities. Regulatory overkill is certainly worth confronting. It may well be that the cumulative effects of regulations, for both good and ill, emerge only over long periods. Both the CEA and Hunter make this point. If that’s the case, the job of separating the good of some regulations from the bad of others is enormously difficult. But that’s not a legitimate excuse for giving up.
—The Washington Post
Robert J. Samuelson writes a twice-weekly economics column. Both appear online, and one usually runs in The Washington Post in print on Mondays. He was a columnist for Newsweek magazine from 1984 to 2011