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2017-10-12 10:34:13
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Donald Trump has blocked new regulations with ease. Repealing old ones will be
harder
DEREGULATION, along with tax cuts and trade reform, is one of the three pillars
of President Donald Trump s economic agenda. Republicans promise that, freed of
red tape, American firms will invest more and unleash faster economic growth.
And while Mr Trump has yet to unite his party around a major piece of
legislation, the White House has plenty of sway over regulatory policy. For a
start, the government agencies Mr Trump commands can regulate and deregulate on
their own (subject only to the instructions that Congress has given them in the
past). How much red tape have they managed to tear down since Mr Trump took
office?
Regulation is difficult to measure precisely, but the long-term trend towards
excessive rulemaking has been obvious. In 1970 there were about 400,000
prescriptive words such as shall or must in the code of federal
regulations, according to the Mercatus Centre, a libertarian-leaning
think-tank. Today there are 1.1m (see chart). Wonks of many stripes agree that
this is far too many and that the rule book must be shortened. Agencies have
rarely combed over old edicts to see whether they are worth keeping. The
problem predated Barack Obama s administration; both Republicans and Democrats
have presided over regulatory expansions. That said, Mr Obama was an unusually
prolific rule-writer, because for much of his presidency a hostile Congress
meant that regulation was often his best tool.
Against this backdrop, the impact of the Trump administration has been
dramatic. The flow of new rules is suddenly a dribble. Since Mr Trump was
inaugurated the number of regulatory restrictions has grown at about two-fifths
of the usual speed. In the last year of the Obama administration, the federal
government wrote 527 regulations deemed significant . Mr Trump s bureaucrats
have penned only 118. And even that number is artificially high, because many
of those edicts served only to delay or weaken Mr Obama s rules. Examples of
genuinely new regulations are few and far between. The White House has
acknowledged only one a rule aimed at reducing the amount of mercury dentists
discharge into sewers, which went into effect in July.
Mr Trump has slowed rulemaking in two main ways. First, on coming to office, he
ordered government agencies not to impose any net new regulatory costs on
companies, regardless of the benefits of doing so, and said that in order to
write any new rules they would have to repeal two old ones. Because it takes
time to unearth and discard dud rules, the practical effect of this has been to
put a brake on new issuance.
Second, Mr Trump has signed 14 bills stopping rules that were issued late in
the Obama administration, and were therefore still subject to review by
Congress, from going into effect. Not only were those regulations blocked (by
means of the Congressional Review Act, or CRA); agencies will never again be
able to write replacements that are substantially the same without lawmakers
express approval. Before 2017, Congress had exercised its power to review
regulations only once: in 2001, after George W. Bush came to office, it blocked
a set of standards for chairs and desks aimed at stopping office workers
getting back pain.
Yet wielding CRA as a deregulatory weapon has its limits, for Congress can
review only rules issued during its previous 60 days in session. Tackling the
bedrock of regulation is far harder. Three approaches are possible: later
implementation of newish rules, looser enforcement of existing ones, and formal
rollbacks of others.
Make America wait again
The first tactic, delay, is being used with abandon. For example, the Labour
Department is trying to stave off parts of a new fiduciary rule , which
requires investment advisers always to work in the best interests of their
clients. (This requirement, like many seemingly simple rules, has somehow
spawned hundreds of pages of legalese.) The fiduciary rule came into partial
effect in June, but the administration is trying to postpone enactment of the
remainder, which would give the edict teeth, by 18 months, to July 2019.
Delays do not always work. When Scott Pruitt, a sceptic on climate change who
heads the Environmental Protection Agency (EPA), tried to put off a regulation
aimed at curbing emissions of methane, a powerful greenhouse gas, from oil and
gas wells, a federal court found the decision to be unreasonable , and blocked
it. I can t tell you how illegal that proposal was, says Bill Pedersen, an
environmental lawyer.
The second method enforcing rules lightly, if at all can be implemented through
handy budget cuts. For example, Mr Pruitt has proposed slimming the agency s
budget by almost a third, though the idea met a frosty reception in Congress.
But it is the final approach, rescinding a regulation altogether, that is the
trickiest to pull off. The EPA hopes to repeal the two main Obama-era
environmental regulations: the Clean Power Plan, aimed at reducing
carbon-dioxide emissions from power plants, and the Waters of the United States
(WOTUS) rule, which expanded the scope of federal regulation of waterways.
Neither has ever come into effect, because both have been delayed by lawsuits
brought by states and affected firms. Some such challenges to Obama-era rules
have ended successfully. A court in August struck down a Labour Department rule
that greatly expanded the number of workers eligible for overtime pay.
Unless courts invalidate a regulation, though, undoing it is like turning a
battleship around , says Steven Silverman, a lawyer who worked at the EPA for
almost four decades. Agencies must start a fresh regulatory process, consult
interested parties and show why their old cost-benefit analysis was wrong a
procedure itself vulnerable to legal challenges. While those play out, the
Democrats could win back the White House and change course again.
For now, the administration s tactic has been to try to stall the court cases,
to keep the rules from taking effect, while they prepare replacements. But the
administration may eventually have to convince judges that Mr Obama s numbers
were wrong. That will be easier in some cases than in others. Mr Obama s
administration often cast around for additional benefits to justify new rules.
Sometimes, its methods were unprecedented. For example, the administration
included the boon to foreign countries when totting up the value of reducing
carbon emissions. The proposal to withdraw the Clean Power Plan, which was
released on October 10th, shows that Mr Trump s regulators have ditched that
calculation. They have also taken a harder stand on so-called co-benefits ,
the positive side-effects of regulations.
The question is how fast the Trump administration will run in the exact
opposite direction. The White House is focused on reducing costs to companies;
wider benefits barely seem to enter its thinking. This particularly threatens
environmental regulations, which tend to have the biggest costs, but also the
largest benefits (see chart 2). In reassessing the economic impact of WOTUS,
the EPA took just a few short sentences to dispense with at least $300m in
annual benefits to wetlands that had been included in the agency s 2015
analysis. The Clean Power Plan replacement disregards entirely the effect that
cutting carbon would have on reducing other noxious emissions that cause
premature deaths an omission that will surely invite a legal challenge.
Yet in other areas the administration seems more thoughtful than zealous. Take
financial deregulation. In January Mr Trump made a crude promise to do a big
number on Dodd-Frank, Mr Obama s financial law, which has spawned thousands of
pages of associated rules. Yet the two reports the Treasury has published on
the subject have been detailed and rigorous. The first, on banking, contained a
variety of relatively moderate proposals, such as raising the threshold above
which banks must carry out stress tests from $10bn of assets to $50bn, and
excluding cash and Treasury securities when calculating banks leverage.
The second report, released on October 6th, concerns capital markets. Equity
markets do not seem to be doing their job well, it says, as seen by a fall in
the number of public companies, possibly because of regulatory complexity. But
elsewhere it warns of the risks that Dodd-Frank funnelled towards so-called
clearing houses , such as LCH.Clearnet and Intercontinental Exchange. The
Treasury argues that clearing houses should be subject to heightened
regulatory and supervisory scrutiny .
Those are not the words of an administration bent on wanton financial
deregulation. Instead, figures such as Jay Clayton, the new chairman of the
Securities and Exchange Commission (SEC), and Randal Quarles, whom the Senate
confirmed on October 5th as the Federal Reserve s vice-chairman for (bank)
supervision, are likely to prune existing regulatory structures. In September
the Fed and the Federal Deposit Insurance Corporation (FDIC) gave a taste of
what is to come. They said banks may now be allowed to refile their living
wills , which set out how they could be dissolved in a crisis, every two years
rather than annually, so long as their business had not changed materially.
This is hardly revolutionary, yet it is important to banks.
Some rulemaking is beyond the administration s reach. On October 5th the
Consumer Financial Protection Bureau (CFPB) said it would require payday
lenders, who offer short-term loans at very high interest rates, to carry out
new affordability checks before advancing credit. The agency will also limit
lenders access to borrowers bank accounts. The CFPB can keep regulating in
defiance of Mr Trump because like the SEC it is independent, meaning the
president cannot dismiss its leadership without good reason.
Alternative facts
There can be little doubt that fewer federal regulations are in place today
than would have been were Hillary Clinton president. But until many more rules
face the chop, companies are unlikely to benefit all that much. Few mentioned
deregulation in their second-quarter earnings calls this summer. When
economists at Goldman Sachs, a bank, surveyed their stock-pickers in May,
regulation was not considered the key policy issue in a single sector. Analysts
emphasised tax reform instead.
The exceptions were watchers of technology, media and telecoms firms, who
emphasised the importance of antitrust regulation. The Trump administration s
attitude towards consolidation in those industries, most notably a proposed
merger between AT&T , a wireless giant, and Time Warner, a content empire, is
unclear. Internet service providers (ISPs) would also get a boost if the
Federal Communications Commission succeeds in loosening Obama-era rules on net
neutrality (the principle that different sorts of web traffic should be
treated equally).
Despite the lack of much true deregulation, the new approach in Washington does
seem to have boosted business confidence. The tone of federal regulators has
changed, notes one senior Wall Street executive, and slowing the flow of new
rules has reduced regulatory uncertainty. Parts of Main Street agree: the
percentage of small firms reporting regulation as their biggest concern has
fallen slightly, from 20% a year ago to 16% today. Another sign, perhaps, is
that the overall optimism of small businesses surged after the election to
close to an all-time high, and has yet to fall back much.
Whether deregulation translates into faster economic growth will only become
clear over time. The range of estimates regarding how much regulation affects
growth is wide, while the quantity of evidence is thin. Economists at the White
House point to a study by Mercatus which argues that if regulations had been
frozen at their 1980 level, growth would have been 0.8 percentage points higher
per year. Critics say that this actually implies a rather small growth effect,
given that Mr Trump is taking aim at a relatively small number of Obama-era
rules. The study also seems, implausibly, to blame regulation for a fall in
investment after the financial crisis.
Ultimately, whether or not such claims are put to the test depends on whether
the Republicans keep the White House in 2020. If they do, Mr Trump will have
time to overcome the inevitable legal challenges to his agenda. America would
probably see a large-scale deregulatory experiment. If they do not, the current
period will look more like a regulatory hiatus than the beginning of a
reversal.
This article appeared in the Business section of the print edition under the
headline "Trump v the rule book"