A Big Trump Success: Deconstruction of The Regulatory State

President Trump signs executive order in his first 10 days of office to curb government regulations.

President Trump signs executive order in his first 10 days of office to curb government regulations.
NBC News / Carlos Barria / Reuters

One huge Trump achievement  only marginally commented upon by the news media has been the beginnings of his deconstruction of the regulatory state, aka the administrative state. Republicans may have failed so far to repeal and replace Obamacare, and passage of tax reform in the U.S. Senate might look problematical, but at least in bringing down the cost of the regulatory state and bringing us back to a more constitutionally sound government, Trump has racked up solid successes.

A Surprising Trump Performance

For many American neoliberals  (often mistakenly called “conservatives”: See here for a straight-forward description of neoliberals, and here for a hostile one), these accomplishments come as a welcome and gratifying surprise. Before Trump became a candidate for the Republican presidential nomination, almost all of his public pronouncements were unabashedly progressive in orientation. This fact led many neoliberals to fear a big “bait-and-switch” by Trump should he become President, and many  became “never-Trumpers” because of this along with Trump’s frequent expressions of ignorance and crudeness. Yet our very unusual new president has surprised us all with a determined effort to curb the U.S. government’s authoritarian powers. In the process he is also pushing us toward a more constitutional form of government with a greater separation of powers between the three governmental branches. This new governmental trend is a 180 degree turn away from the progressive program for the past century.

Absent major legislative achievements, the Republican Party can glean at least some satisfaction from President Trump’s purely executive efforts. The GOP Senators can share a modicum of credit for the approval of Justice Neil Grouch to the Supreme Court, and for a large number of “conservative” judges to the lower federal courts. However, beyond that, most substantive Republican accomplishments have been due to Trump’s executive orders canceling some of the previous administration’s serious errors.

Following is a list of some of the more important of Trump’s executive orders that have helped to free-up much of the American economy.

  • “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act”: This order instructs federal executive officers to minimize the economic burden of Obamacare on citizens and companies until it can be “repealed and replaced”. The Secretary of Health and Human Services and other federal officers are instructed to “waive, defer, grant exemptions from, or delay the implementation” of any part of the law that places a fiscal burden on the government, businesses or individuals. This includes waiving the individual mandate.

  • “Expediting Environmental Reviews and Approvals for High-Priority Infrastructure Projects”: This order directs that environmental reviews of “high priority” infrastructure projects (roads, bridges, airports, highways, oil pipelines, etc.) be expedited.

  • “Reducing Regulation and Controlling Regulatory Costs”: This order is a direct attack on the progressive regulatory state. It requires that before an executive department or agency can propose a new regulation, they must eliminate two. In addition net changes to regulatory costs must be less than or equal to zero dollars, with any new regulatory costs offset by reductions from eliminated regulations.

  • “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the U.S.’ Rule”: A herald for a major revision of Barack Obama’s Clean Water Rule, this order instructs the EPA and the assistant secretary of the Army for Civil Works to propose a new rule that either eliminates or revises Obama’s rule. The current Clean Water Rule has been widely interpreted as a federal power grab to gain jurisdiction over the use of water on farmland, or even its existence as puddles in your backyard or in drainage ditches.

  • “Promoting Energy Independence and Economic Growth”: This is another order to the EPA to review and replace another Obama executive order instituting a Clean Power Plan. Obama’s Clean Power Plan was aimed at reducing American carbon dioxide emissions into the atmosphere by gradually making the use of fossil fuels uneconomic. This is despite the fact that atmospheric carbon dioxide concentrations are now dangerously low for the continued existence of life on Earth. Trump’s order asks federal departments and agencies to review any regulations that could “potentially burden the development or use” of fossil fuels or nuclear energy.

  • “Identifying and Reducing Tax Regulatory Burdens”: This order directs the Secretary of the Treasury to make a review within 60 days of April 21, 2017 of all tax regulations created in 2016 and 2017 that put an “undue financial burden on United States taxpayers.” Then within 150 days the Secretary must submit a plan alleviating “the burden imposed by regulations” identified by the review.

Luckily, almost all of Trump’s executive orders have had the effect of deregulating society, particularly the economy, rather than adding even more rules to an already over-regulated society.

Problems With Executive Orders and the Regulatory State

Many Obama administration errors  had been foisted on the nation by Obama’s own executive orders, which points out how the regulatory state poses such a grave threat to republican democracy. By delegating legislative and even judicial powers over the past century to executive branch departments and independent government agencies, Congress has passed ruling power to government organizations over which the people have little or no influence. This is Friedrich Hayek’s Road To Serfdom, which if followed long enough leads to dictatorial, fascist government. Christopher DeMuth, a distinguished fellow at the Hudson Institute and former president of the American Enterprise Institute,  wrote recently in the Wall Street Journal,

Federal regulation has been growing mightily since the early 1970s, powered by statutes that delegate Congress’s lawmaking authority to mission-driven executive agencies. Beginning in 2008, the executive state achieved autonomy. The Bush administration during the financial crisis, and the Obama administration in normal times, decreed major policies on their own, without congressional authorization and sometimes even in defiance of statutory law.

Be afraid. Be very, very terrified.

Included in the Obama administration’s damage to the nation were regulations authorized by the Dodd-Frank Act that have done great harm to the financial industry; the EPA’s Clean Power Plan that has destroyed a great many jobs in the coal industry and raised energy costs for many others; regulations promulgated under Obamacare, which have raised healthcare costs for businesses and everyone from the middle class on up, while not significantly increasing healthcare availability (as opposed to insurance coverage) for anyone; and  a general increase in regulations that have cost businesses and individuals an estimated $100 billion annually in red tape during the Obama administration. Not included in this tally is the loss of individual and private organizational freedoms, and opportunity costs reducing the chances for economic growth.

There are in fact several difficulties with depending only on presidential executive edicts to solve social and economic problems. The first is the President can not arbitrarily do anything he thinks necessary. He can lawfully issue executive orders concerning some matter only if the Constitution or statutory law authorizes him. This is a fact Obama conveniently forgot on several important occasions. One of those deplorable occasions was tied to maintaining medical insurance companies’ support for Obamacare, despite the fact Obamacare regulations required an increase in medical costs for just about everyone, including insurance companies and most of the insured. One of the increases in costs for the insurance companies was a required reduction in “cost-sharing” for those insured: deductibles, copayments, coinsurance, and similar charges to covered individuals. Regulations under Section 1402 of the Affordable Care Act (ACA) added these costs to the insurance companies, but they made the ACA more palatable for the insured. Ironically, even with those cost reductions, premiums, deductibles and copayments have exploded under Obamacare. However, without them the economic demands on people enrolled under the ACA would have been much higher, driving Obamacare much sooner into its much-heralded  “death spiral.”

So why were insurance companies willing to hold down premiums, deductibles, and copayments under the onerous ACA regulations? It is because the Obama administration decided to give them subsidies to hold down the companies’ losses. This decision shifted the losses and costs from the companies to the taxpayers. Without this shift, either the government would have to allow companies to increase premiums, deductibles, and copayments to a much greater degree, or companies would begin to drop out of the health insurance business to avoid bankruptcy. In 2014, President Obama authorized payments of subsides through a presidential executive order.

The really, really big problem with this executive order was that it was completely unauthorized by the ACA or any other statutory law. It was certainly not authorized by the Constitution. Article I, Section 9 of the U.S. Constitution states in part,

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

This is in that part of the Constitution detailing the powers and duties of the Congress; and Law is (supposedly) made by Congress, not by the President. Since neither the ACA nor any other statutory law authorized an appropriation for subsidies to health insurance companies, President Obama violated the Constitution when he unilaterally and arbitrarily issued an executive order to pay them. There is a very vital reason for such a limitation on the President’s power to spend public funds. Without this constitutional restriction, the President could spend public monies on any whim he had. This could be a truly tyrannical abuse of power that would emphasize his will over that of the Congress and the people they represent.

President Obama’s executive order authorizing the subsidies was such a blatant violation of constitutional law that last year the Unites States District Court for the District of Columbia granted a summary judgement against the subsidies in United States House of Representatives v. Sylvia Matthews Burwell. In its conclusions, the court wrote,

The Court will grant summary judgment to the House of Representatives and enter judgment in its favor. The Court will also enjoin any further reimbursements under Section 1402 until a valid appropriation is in place. However, the Court will stay its injunction pending any appeal by the parties. A memorializing Order accompanies this Opinion.

Even though the subsidies were ruled unconstitutional, the Court allowed the Obama administration to continue them pending any appeals. However, since the subsidies were originally “authorized” by an Obama executive order, Trump could easily withdraw that authorization with his own executive order. In the middle of October, Trump pulled the trigger on the Obamacare corporate subsidies.

The fate of Obamacare subsidies points out a second problem with depending upon presidential edicts: Namely the imposition or abolishing of regulatory rules by executive order is not as permanent as it would be if established by legislation. Any future president who opposes the rule changes of the current administration can completely reverse them with his/her own countermanding executive orders. To keep them from being changed at the will of a future president, any new rules — or their abolition — would have to be enshrined in new statutory law.

Thirdly, a President simply issuing his own executive orders does not reduce the lamentable tendency of Congress to delegate so much of its legislative (and sometimes the judiciary’s) responsibilities to the executive branch. Part of congressional aversion to making laws and the delegation of their creation to technocrats is caused by the very complexity of society itself. Senators and representatives tend to be lawyers, with nearly half of them belonging to that profession. A large number of other lawmakers are from business, banking, and education. This means there is a great dearth of congressional expertise in the physical sciences, engineering, mathematics, history, systems analysis, and even economics beyond a smattering of Keynesian ideas. Yet, as noted in the posts How Is the Weather Like a Country’s Economy? and The Lies Progressives Tell (Especially To Themselves!), systems of interacting human beings are almost always chaotic systems with huge numbers of degrees of freedom that are proportional to the number of humans composing them. Most lawmakers can be forgiven for being daunted at the prospect of trying to make rules to control and manage society in detail. Better to delegate rule-making for particular problems to the true experts, to the technocrats who know the field. If the problems of interest are with the financial industry, then hand the problem over to the Federal Reserve and its creature the Consumer Financial Protection Bureau (CFPB). Does the headache have to do with the environment and/or perceived problems with Earth’s climate? Then hand it over to the Environmental Protection Agency (EPA) and/or to the National Aeronautics and Space Administration (NASA). Does someone think the internet has a systemic problem? Have the Federal Communications Commission (FCC) take charge of it.

Yet there are many extreme disadvantages to society with this approach to law-making. One weakness of it is that rule-making is banished to a small group of people over which most of the electorate has little contact or influence. Another is the supposed expertise of the technocratic independent government agency or executive department might be more apparent than real. Yet another pitfall is the enthusiasms of the technocrats can lead them to create huge problems for society to which Congress and the President can respond only with great difficulty. One characteristic of independent government agencies is they are often insulated as much as possible from politicians so that the politicians can not quickly interfere with their diktats.

All of these drawbacks are illustrated in one very young independent agency, the Consumer Financial Protection Bureau. It was created by Democrats in the Dodd-Frank Act as a reaction to the financial crisis that produced the Great Recession of 2008-2009 when they controlled both houses of Congress and the presidency. It exhibits the typical progressive insulation designed to wall it off from the rest of the government. First, it is able to act as if it were beyond effective legislative oversight. This is because it was intentionally made a part of the Federal Reserve, placing one protected government agency within another. As long as the Federal Reserve is an independent agency, answerable to no one apart from periodic reports to Congress, the CFPB is essentially immune to the political system. Presumably, it does have to answer to the Federal Reserve Board of Governors, but if both bodies are dominated by progressives, there is nothing others can do to limit its actions. This same method of organization also protects the CFPB from executive branch management or oversight. It is even protected from direct action by Congress, since Congress can not cut its funds in any way. Congress does not directly hold the power of the purse over it, because it is funded through the Federal Reserve’s budget, which is separate from the federal budget. In the words of the Act, the Federal Reserve’s Board of Governors “shall transfer to the [CFPB] from the combined earnings of the Federal Reserve System.” [Dodd-Frank, § 1017(a)(1)]. Dodd-Frank also explicitly states CFPB’s funds from the Federal Reserve “shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.” This means the CFPB director determines his own budget. Short of amending or repealing Dodd-Frank, there is precious little that anyone in the Federal Government can do to limit the agency’s scope. Another big problem was that governance of the CFPB was placed in a single director, not directly answerable to the President, rather than a commission, placing all the power discussed below in a single man.

Alas the CFPB’s scope can be breath-taking. It has the power to administer and enforce federal consumer financial law with exclusive rule-making authority. Among the powers the CFPB asserts is the implementation and enforcement of all consumer-related laws involving finance and credit, and therefore the power to dictate U.S. credit allocation. If such an assertion is taken seriously, that pretty much covers power over all economic decisions. It and only it determines what products and conduct dealing with consumers’ market interactions fall within its purview. It enforces its own regulations. On the other hand the CFPB can exempt any product or service from its jurisdiction if it determines that to  be “necessary or appropriate.” [Dodd-Frank, § 1022(b)(3)(A)] A more sweeping opportunity for political corruption and crony-capitalism can hardly be imagined.

The gathering of such an immense amount of concentrated economic power in an essentially unsupervised, unanswerable organization was apparently too much even for the generally progressive U.S. Court of Appeals for the District of Columbia. The court case was PHH Corporation, et. al. v. Consumer Financial Protection Bureau, in which PHH was contesting a $109 million penalty assessed by the CFPB.  A three judge panel of the DC circuit ruled that because of its immense, unanswerable power, the CFPB was unconstitutionally structured. Unfortunately, the Court is allowing the CFPB to continue, rather than totally shutting it down, but has ruled that the Director must serve at the pleasure of the President. Before the court case, the CFPB director could only be removed for cause. On page 13 of their lengthy ruling, the judicial panel writes,

In sum, we grant PHH’s petition for review, vacate the CFPB’s order against PHH, and remand for further proceedings consistent with this opinion. . . . In so ruling, we underscore the important but limited real-world implications of our decision. As before, the CFPB will continue to operate and perform its many critical responsibilities, albeit under the ultimate supervision and direction of the President.

I suspect, however, this is not anywhere close to the end of the story. The possibilities for abuse of power are so so large, the GOP House of Representatives has passed the Financial Choice Act, which reforms some of the worst aspects of the Dodd-Frank Act. As far as the Consumer Financial Protection Bureau is concerned, the bill would strip the CFPB of powers to write rules and supervise companies. Unfortunately, since the bill is not a reconciliation bill, and since the Democratic Party considers the Dodd-Frank Act to be sacred and holy writ, the bill’s prospects in the Senate would appear hopeless unless the World’s Greatest Deliberative Body abandons the filibuster for ordinary legislation. Then again, maybe someone can figure a way to make it into a reconciliation bill. Eventually, however, some company’s tort complaint against the CFPB is bound to reach the Supreme Court. Given the Court’s present makeup, I would not wager much on the CFPB’s chances in that arena.

Neoliberal Suggestions For Taming the Regulatory State

Trump has made an excellent start   in bringing the anti-democratic regulatory state under control, but it is only the barest of beginnings. Simply nullifying past executive orders increasing government regulations with his own executive orders is something easily reversed by some future progressive President. As already noted those changes must be codified into law to ensure they can only be changed by another act of Congress.

In addition, there have been a number of suggestions that would make it more likely the regulatory agencies produce only the most needed of regulations. In fact, the purpose of one Trump executive order, entitled Reducing Regulation and Controlling Regulatory Costs, is to force government agencies to weed out as many unnecessary regulations as possible. According to the order,  before an executive department or independent agency can even propose a new regulation, it must eliminate two earlier ones. You might think this the heavy-handed use of an undiscriminating meat ax, but there is actually a huge amount of fat that needs to be carved away. In 2016 the Federal Register, which gives public notice of new federal regulations, had 95,894 pages. This was an increase of 15,634 over the previous year’s pages, an annual growth rate of 19.5%. Can there be any more eloquent proof of authoritarian government run amuck?

Yet another suggestion that has been around for some time is that if a proposed regulation was extremely consequential and costly, it should be approved by Congress before it took effect. In 2011 a group of Republican representatives tried to pass a House  bill, the Regulations from the Executive In Need of Scrutiny (REINS) Act, to force this kind of oversight, but of course they were unsuccessful. It would have required that any proposed regulation costing the economy $100 million or more would have to be approved by both houses of Congress before it took effect. Any such Congressional barrier to major new government regulations is anathema to Democrats and to the progressive program of the past century or so. In the face of almost total Democratic opposition to these kinds of proposals, any bill proposing this type of oversight would be stillborn in the Senate due to Democratic filibusters. The Republicans would need to muster 60 votes to invoke cloture, and right now they only have 52.

There is a third proposal for reigning in regulatory agencies called regulatory budgeting, which is somewhat similar to requiring Congress to approve regulations costing the economy more than a certain amount. With the regulatory budgeting approach each regulatory agency is assigned a maximum amount in costs it can impose on the economy with its regulations. In the aforementioned Trump executive order Reducing Regulation and Controlling Regulatory Costs, the President actually requires the institution of regulatory budgeting in Section 3, paragraph (d) of the order. It reads,

(d)  During the Presidential budget process, the Director [of the Office of Management and Budget] shall identify to agencies a total amount of incremental costs that will be allowed for each agency in issuing new regulations and repealing regulations for the next fiscal year.  No regulations exceeding the agency’s total incremental cost allowance will be permitted in that fiscal year, unless required by law or approved in writing by the Director.  The total incremental cost allowance may allow an increase or require a reduction in total regulatory cost.

Needless to say, we can expect Democrats to be bitterly opposed to this idea as well, as they are hostile to any limits to the regulatory state. This  is despite the fact the idea originally arose in political circles among Democrats in the Jimmy Carter era. Christopher Muth in his already mentioned Wall Street Journal post notes interest in the idea by Jimmy Carter’s commerce secretary, Juanita Kreps, who saw regulatory budgeting as a good-government measure; by Sen. Lloyd Bentsen (D., Texas) who introduced legislation; and by a number of academics including Muth himself, who “worked out the theory and practicalities in congressional reports and journal articles.” Concerning the progress of the idea during and after the Carter administration, Muth writes,

The idea never went anywhere. One problem was the inherent sponginess of regulatory cost estimates, which seemed inconsistent with the clear dollar metrics that drive spending budgets. Another was the herculean task of tracking the aggregate cost of the stock and flow of agency rules. When Ronald Reagan came into office, he instead imposed a cost-benefit test on individual rules, enforced by OMB. All subsequent administrations essentially continued that approach.

But several developments have combined to revive the budgeting idea in a more workable form. Although the cost-benefit test has improved regulation at the margins, it has become progressively less constraining over time and proved manifestly inadequate to the dynamics of large-scale regulatory growth. The Obama administration corrupted cost-benefit analysis, inflating benefits while minimizing costs, to sell a host of dubious energy and environmental rules. Moreover, the cost-benefit test applies only to new rules, leaving established and often obsolete regulations untouched. . . . 

At the same time, a hybrid form of regulatory budgeting has been adopted with some success in Britain and Canada, while kindling interest in the U.S., notably from Sen. Mark Warner (D., Va.) and House Budget Committee Republicans. Under this variant, agencies may issue new rules only by simultaneously withdrawing some existing rules, with the estimates of the costs imposed and saved used to make the trade-off commensurate. So the budgeting begins by counting rules and employs cost estimates only for incremental actions, but it creates incentives for agencies to assess the effectiveness of their existing regulations and to set priorities.

The development of the American regulatory state can be viewed as the primary project  for American progressives for the past century, if not longer. They view it as the main tool for taming the Capitalist Beast for the benefit of the people. However, it is itself the real Beast, a monster that will inevitably destroy both our economy and our own freedoms that allow us to live our lives as we wish. It must either be tamed or slain.

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