By Gary Shilling
(Bloomberg Prophets) --Reducing government regulation is tough. It’s resisted by all those who benefit, including government employees who administer the many programs. Every president since Jimmy Carter has attempted to lower the cost of regulation. At best, any cuts have been tiny and mostly centered on trimming paperwork. But less regulation is one campaign promise made by Donald Trump that is coming true. With tax and health-care reform problematic and given the president's protectionist leanings, deregulation is probably a major driver of the stock market rally.
The size and scope of the federal government give the president immense powers. In relation to gross domestic product, federal spending rose from 16 percent in 1946 to 22 percent in the 2017 fiscal year. Executive orders give the chief executive, in effect, legislative powers. President Barack Obama issued many in his waning days, especially affecting power plants and oil pipelines. The Competitive Enterprise Institute last year found regulation cost American businesses $1.9 trillion, dwarfing the $344 billion in corporate taxes. About 56 percent of CEOs see overregulation as a major threat to their organization, more than cybersecurity (50 percent), rising taxes (41 percent) or even protectionism (27 percent).
Whenever a new regulation is made or changed, it must be chronicled in the Federal Register. In the last years of the Obama administration, regulatory activity went parabolic, hitting almost 97,000 pages in a year. The annualized pace under Trump through July 31 was 61,330 pages, the fewest since the 1970s. This year through June, the federal government had made 1,731 preliminary, proposed or final rules, the least since 2000 and down 40 percent from the 2011 peak under Obama. Many actions taken under Trump are reversals of earlier rules made under Obama. Of 66 completed actions at the Environmental Protection Agency, a third were rule withdrawals.
Shares of banks have benefited, as those with more than $50 billion in assets are now able to merge without increased scrutiny. Scaling back the Volcker Rule would allow big banks to resume proprietary lending. The delay and likely alterations of the fiduciary requirement would aid brokers and insurers. The House has already approved a widespread rewrite of Dodd-Frank. A bipartisan group of senators recently agreed to exempt banks with less than $250 billion in assets from the “systemically important financial institutions” group that is subject to much stricter oversight, including higher capital buffers. Previously, the threshold was $50 billion. Congress also shut down the Consumer Finance Protection Bureau rule that would allow consumer class-action suits against banks as opposed to arbitration
Drug producers are gaining from faster Food and Drug Administration approvals. Miners and other dangerous companies now have relaxed accident-reporting requirements. The Interior Department indicated it would rescind proposed rules on oil and gas fracking on federal land. The Federal Communications Commission is reversing the Obama-era decision to regulate internet service providers as utilities. In another reversal, the Equal Employment Opportunity Commission will stop the scheduled collection of data from employers on how much they pay workers of different genders, races and ethnic groups. Meanwhile, the Occupational Safety and Health Administration is reducing its reporting of workplace fatalities.
Within days of taking office, Trump signed two executive orders supporting the construction of two controversial oil pipelines -- Keystone XL and Dakota Access -- that Obama had refused to back, due mostly to environmental concerns. The Trump administration is also considering reducing the size of some national monuments to free the land for ranching, hunting and fishing, mining and other commercial uses. This, too, can be done without legislation.
Using the 1996 Congressional Review Act, Congress and the president have repealed 14 of Obama’s final regulations. About 29 of Trump’s executive orders and White House directives have reduced regulations, executive branch agencies have issued additional deregulation directives, and Congress is considering 50 more.
In some cases, private sector companies wish regulations weren’t instituted in the first place, but they’ve spent so much time and money to comply with them that reversals wouldn’t be worth it. A case in point is the fiduciary standard. The Labor Department delayed its rule that investment advisers be held to the fiduciary standard of putting their clients’ interest above their own on retirement accounts. But many firms have already made the switch. Similarly, large banks that have spent huge amounts to comply with the 2010 Dodd-Frank financial regulation law don’t want it to be dismantled.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.”
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