A look into the Trump administration’s push against regulation.
A look into the Trump administration's push against regulation.
Editor’s Note: The following is an excerpt from The Drift: Stopping America’s Slide to Socialism by Kevin Hassett. In the book, published this month by Regnery, Hassett recounts his experience as Chairman of the Council of Economic Advisers during the Trump administration, as well as the time that he spent as a senior adviser to the president on economic policy. The excerpt has been edited for brevity and clarity.
L et’s take a moment to sort out all of the costs of unnecessary regulation.
Increases in regulation decrease rates of new-business entry, which is unfortunate because newer firms tend to make greater contributions to economy-wide productivity, which in turn means higher wages for Americans. Increased regulation may even explain much of America’s recent productivity slowdown, which exacerbated the stagnation of wages under Bush and Obama.
Local regulations can cost the national economy. According to one estimate, for instance, the relaxation of restrictive land-use regulations in just the three cities of New York, San Jose, and San Francisco between 1964 and 2009 would have increased U.S. economic output in 2009 by 8.9 percent, translating into an almost $9,000 boost in average wages for all American workers. Such overregulation damages people’s ability to relocate to where jobs exist. Geographic mobility in the United States has ebbed to an all-time low, as regulatory barriers, especially at the state and local levels, make living in high-priced cities unattainable for many Americans. But many of America’s cities, where jobs are plentiful, are unavailable to Americans because the local regulation burden on land-use and construction has made houses unaffordable.
No state has done a better job at killing jobs than California. One example: Beauty and personal care have long been an important first rung of a ladder that has led many people with modest educational credentials to rise in those professions, sometimes even to ownership of their own shops. But one must have cosmic patience to pursue these professions in the Golden State.
California’s Board of Barbering and Cosmetology requires 1,600 hours of education and hands-on training before taking a licensing test for cosmetology. An additional 3,200 hours of apprenticeship and 220 hours of related training are required for licensing. Not to be outdone, Oregon requires 1,450 hours of education and training for hair design licensing and 350 hours for nail technology, along with 150 hours of safety or infection-control training and 100 hours of career development at a state-licensed career school.
In the 1950s, less than 5 percent of the workforce was licensed, compared with about 18 percent in the 1980s. By 2000, this had grown to at least 20 percent; and in 2003, more than 800 occupations required licensing in at least one state. In 2008, 35 percent of employees across the United States were either licensed or certified by the government, with 29 percent licensed.
It is easy to see why national and local politicians act in ways that benefit large or powerful home district constituencies. Harder to understand is the largely unseen destruction of American jobs and income caused by a permanent Washington bureaucracy that specializes in red tape and rulemaking that serves no constituency, except perhaps by generating work for attorneys. These rules cost the nation dearly but often do nothing to serve the economy, the well-being of the American people, or the environment. They are simply imposed by the bureaucrats to serve their internal processes, which in turn validate their . . . power? Sense of self-worth? Justification for their jobs?
The costs of local regulations are onerous. At the national level, the costs of regulation are obscene. How much? For a start, reports estimate as much as $2 trillion in compliance costs. According to the Office of Management and Budget, Americans spent 9.8 billion hours devoted to compliance paperwork in a recent year. Imagine if those almost 10 billion hours were used by American workers to create output equal to average hourly earnings. It would pump $245 billion into the wallets of American families.
Every modern president has grappled with this problem of overregulation. Every president has failed, but Trump fought the hardest and accomplished the most.
Under President Jimmy Carter, the Paperwork Reduction Act of 1980 was designed to reduce the total paperwork burden that the federal government imposes on private businesses. What did Washington do with that mandate? The paperwork burden for regulatory compliance went from 7 billion hours in 1997 to 9.8 billion hours in 2009 — an average annual increase of 2.8 percent. (Someday, perhaps, we should compute these paperwork costs in terms of forests as well as man-hours.)
No one disputes the need for clean air. In recent decades, the United States has made enormous strides in clearing our air of smog. For anyone who spent time in Pasadena, California, in the previous century, it is a joy to go to Pasadena today and see the San Gabriel Mountains. But the Clean Air Act, which made much of this possible (along with the ever-increasing energy efficiency of American business) reached a trade-off in which the costs of regulation exceed any environmental benefit. The act’s stricter air quality regulations are associated with an almost 2.6 percent decline in productivity in manufacturing plants. The Clean Air Act may have decreased productivity by an estimated 4.8 percent, roughly $21 billion (in 2010 dollars) annually, or about 8.8 percent of the manufacturing sector’s profits during the relevant period.
Those are costs that can be measured in terms of jobs, income, and family well-being. And yet, whenever an administration questions these costs or seeks to tweak them to the benefit of working Americans, the permanent bureaucracy reacts with feigned alarm and a compliant media broadcasts hysterical claims, with headlines such as “Administration Guts Clean Air Act!” The media, with their mindless and reflexive defense of wasteful regulation, advance our drift toward socialism. The mechanism that can defend even the insane Jones Act is a historical, formidable opponent.
Because of the hysterical reaction of the media to modest adjustments to regulations, there were only slight differences of degree between recent Republican and Democratic administrations on regulation — until Donald Trump. From 2000 to 2016, the federal government put out an average of over 100 more significant final regulations than the number our administration finalized in 2019. And many of the rules the Trump administration published were deregulatory actions that did not impose burdens on Americans but lifted them.
The Federal Register page count is one rule-of-thumb measure of an administration’s record on regulation. When George W. Bush became president, there were 64,438 pages in the register. When he left office, there were almost 80,000 pages. Not to be outdone, President Obama hit 95,894 pages in his last year in office.
Under Obama, federal regulations grew by an unprecedented 8 percent per year, tying an anchor around the necks of small businesses struggling to learn how to comply with successive regulations. CEA determined that in just the first six months of the Trump administration, businesses spent 5 million fewer working hours coping with regulations — time that could be applied to productive work.
Another measure of an administration’s real record on regulation includes the number of times restrictive terms like “shall” or “required” are used. Under President Obama, the number of restrictive terms increased by about 120,000. For President George W. Bush, the increase was about 105,000. Under President Trump, such regulatory restrictions actually decreased. The libertarian Cato Institute reports that the total number of economically significant regulations issued under Trump was less than 50 percent of those issued by Bush and Obama.
Despite the successes of our administration, before Joe Biden came to office, the regulatory state was still imposing $1.9 trillion in costs according to the Competitive Enterprise Institute. Some part of that cost is necessary to protect the environment, the economy, and human health. But much of it is still sheer waste. That waste constitutes an enormous hidden tax on families. In fact, if our regulatory state were a country, it would be bigger than Canada’s entire economy. The idea that we are getting more than $1.9 trillion in health-and-safety benefits from these rules is laughable.
If one-half of that amount could be reinvested in American industry and jobs, think of what that would mean for the family income, stability, and prosperity of Americans. Instead, we tolerate this extraordinary degree of waste, year after year, because it is unseen. The most remarkable aspect of this is that aside from the bureaucracy and lawyers, there really isn’t a constituency for these regulations and this waste. Yet politicians in the Swamp double down on overregulation, year after year.
One of Donald Trump’s favorite tropes was to talk about how “stupid” American leadership is compared to that of other countries. When it comes to overregulation, that’s certainly true. According to OECD reporting, the United States tends to be more regulated than its OECD peers. In fact, the OECD’s calculations place the United States 27th out of 35 countries in terms of regulation, behind France, Chile, and the Czech Republic. In other words, there is a Jones Act under every rock, and a viper waiting to protect it.
Other countries are indeed often quicker to recognize the costs of doing business than we are. Both Canada and the United Kingdom have implemented similar processes for administrative rulemaking. In 2012, Canada enacted a “One-for-One” for regulatory requirement, while the United Kingdom imposed a “One-In, One-Out” rule in 2011, meaning that for every new rule, an old one must be thrown out. In the UK, for example, the government has reduced business burdens by an estimated £963 million. This effort has been so successful that the government changed the rule to “One-In, Three-Out” through 2020.
As soon as he became president, Donald Trump took aim at red tape and regulation like a heat-seeking missile. In 2017, President Trump issued four executive orders directing agencies to review current regulations. The first, Executive Order 13771, instructed agencies to repeal two regulations for every new regulation and to ensure that the total incremental cost of all new regulations does not exceed zero. Another executive order, Executive Order 13772, provided core principles for regulating the U.S. financial system in ways that emphasized empowering individuals to make informed, independent financial decisions. Another, Executive Order 13777, required agencies to review all existing regulations in order to highlight excessive regulation, which includes analysis to identify regulations that are outdated, that eliminate jobs or inhibit job creation, or have costs that exceed their benefits. And finally, Executive Order 13783 focused on energy regulations, requiring agencies to review existing regulations that may burden the development of domestically produced energy resources. These orders set up our administration to identify the low-hanging fruit in deregulation that yield big savings.
In the first autumn of the administration, we reported that agencies withdrew 635 proposed actions from the last year of the Obama administration. Agencies also reclassified another 944 active actions, with 700 put on hold and another 244 made inactive while placed under review. All these actions reflected Donald Trump’s commitment to meaningful consideration and reconsideration of regulations. Of the new proposed rules and rules already under review, the administration published only 89 final rules, about 42 percent of the average number of final rules published annually during the past 10 years.
In the Department of the Interior, we finalized 28 deregulatory actions, leading to a $1 billion cut in costs for business and jobs. The department’s Bureau of Land Management proposed repealing rules regulating hydraulic fracturing that duplicate state regulatory efforts. The Department of Labor created plans to streamline its approval process for apprenticeship programs to help workers looking to participate in such programs. The Department of Transportation planned to issue a rule that would give passenger railroads increased flexibility in designing trains, including easing the regulatory burden for high-speed rail operation, which would increase competition in the passenger train market.
In that first executive order on regulation, President Trump, perhaps looking to the success of the British effort, instructed administrative agencies to consider whether earlier regulations are unnecessary before creating new ones. For example, the Department of Housing and Urban Development announced a top-to-bottom review of its manufactured housing rules to evaluate whether the compliance costs of these rules are justified given the shortage of affordable housing. By requiring the removal of two regulatory actions to offset the implementation of each new regulatory action, the “two-for-one rule” limited future regulatory costs. In this way, agencies ensured an overall outcome of zero net costs, or even cost savings.
Nowhere did regulatory reductions prove more benefits than in the Environmental Protection Agency (EPA), which issues rules that often have impacts across the economy. President Trump’s EPA administrator, Andrew Wheeler, issued a memo to bring transparency to the way the EPA implemented cost-benefit analysis, so the public and Congress could weigh each regulation fairly. Previous administrations had attempted this, but with a subjective, watered-down metric. President Obama, for example, included escape hatches for the bureaucracy that contained nebulous standards like “equity,” “fairness,” and “human dignity.” Politicians and the public can weigh such values themselves. What voters and the people they elect needed was a transparent way to see the actual costs being spun out of the maze of government.
During the Obama years, I could see the stream of regulations flowing out of the West Wing from my perch at AEI a few blocks away. The Obama administration’s regulatory abuses were affronts to the laws not only of economics but also of the United States. For instance, if you think President Trump overreacted in his attacks on “globalism,” read the Obama administration’s cost-benefit analysis of an environmental regulation of greenhouse gases, arguing that the global benefits outweighed the U.S. costs! That was the first time a U.S. regulation was, to my knowledge, justified on the basis of global benefits, in violation of American law.
The EPA was often the worst regulatory offender. Under Donald Trump, the EPA set out to cite the highest standard of scientific evidence in its cost-benefit reports. In enacting this rule, the EPA conducted “retrospective reviews” so it could look back on old regulations to examine whether projected benefits and costs were accurate. Had previous projections on a given rule been inflated or undervalued? Have regulations accumulated in a way that harms economic growth? If so, we had a guide to help us on what to do next.
In the first eight months, the Trump administration issued 67 deregulatory actions and 3 regulatory actions, far outpacing the goal of 2 deregulatory actions for every 1 regulatory action.25 That translated to more than $8.1 billion in present-value cost savings. Once fully in effect, 20 major deregulatory actions undertaken by the administration were calculated to save American consumers and businesses over $220 billion a year. Under President Trump’s administration, regulatory costs tracked by the Office of Information and Regulatory Affairs fell by $50 billion, and costs were on track to fall by at least $52 billion in 2020. Nor were these giveaways to the rich. Deregulation in two key sectors — prescription drugs and Internet access — helped the poorest fifth of households eight times more than the richest fifth.
I was able to report to the president that in just the first six months of his administration, businesses spent 5 million fewer working hours coping with regulations. Over four years, our deregulatory measures could save American households an average of $3,100 a year.
These were impressive numbers, the most impressive deregulatory impact from any administration ever. And yet, in that one presidential term, we had hardly made a dent.