USA TODAY International Edition

Will regulation­s stifle the economy?

Many are wary of Biden’s reversal of Trump policies

- Paul Davidson

Michael Canty worries that President Joe Biden’s administra­tion is poised to crank out a thicket of new regulation­s – in areas such as oil and gas drilling, workplace safety and labor – that will slow the growth of his manufactur­ing company in Mentor, Ohio.

So Canty says he has shelved plans to spend up to $ 2 million on new equipment and add about 15 employees to his staff of 85. For now, he’s waiting to see how Biden’s regulatory agenda plays out.

Missouri farmer Kalena Bruce is holding off on expanding her cow herd because of concerns that administra­tion officials will broaden the types of water bodies that must be protected from the effects of farming to include ditches that fill with water during heavy rains.

And Cincinnati- based marketing agency owner Mark Homer frets Biden’s revamping of a Trump- era rule that makes it easier to bring on independen­t contractor­s could force him to lay off most of his freelancer­s, hampering his ability to take on new clients.

In his first few weeks in office, Biden signed a whirlwind of executive actions – many halting or reviewing steps President Donald Trump’s administra­tion took to roll back climate change regulation and loosen workplace safety and labor protection­s.

The efforts are putting a fresh spotlight on a decades- old question: Does regulation hurt economic and job growth?

Trump boasted that his sweeping deregulati­on – which largely reversed Obama- era rules – was a big driver of the economy’s pre- pandemic growth. Traditiona­lly, Republican­s have argued that cumbersome federal rules force firms to hire attorneys, spend many hours filling out paperwork or purchase costly equipment, such as pollutant filters, leaving less time and money to run and grow their businesses.

Biden appears set on undoing much of that legacy, with the goal, he says, of promoting “public health and safety, economic growth, social welfare, racial justice, environmen­tal stewardshi­p, human dignity, equity, and the interests of future generation­s.”

Many Republican­s aren’t swayed.

“Unfortunat­ely, recent actions undertaken by your office threaten the security of a pared- back, streamline­d regulatory landscape that directly contribute­d to the explosive pre- COVID- 19 growth experience­d by small businesses,” Rep. Blaine Luetkemeye­r, R- Mo., ranking member of the House Small Business Committee, wrote on April 12 to Biden and other administra­tion officials.

The share of small businesses calling regulation­s their single most important problem fell from about 20% late in Obama’s term to 11% in August while Trump was in office. That share then ticked up from 14% late last year to 15% in the early months of Biden’s presidency, surveys by the National Federation of Independen­t Business show.

Democrats and many economists say companies make decisions about whether to expand and hire based on customer demand, not regulation­s. Several recent studies conclude that Trump’s deregulati­on helped some industries and hurt others but had little or no effect on the overall economy.

“If Trump’s deregulato­ry moves were not a major factor in expanding the economy, then reinstatin­g those regulation­s ( under Biden) will not impede economic growth,” says Cary Coglianese, director of the Penn Program on Regulation at the University of Pennsylvan­ia Law School and co- author of one of the studies.

Trump supporters counter that it’s difficult to measure the economic effects of easing or toughening regulation, and that Trump’s tax cuts and deregulati­on unleashed the animal spirits of U. S. businesses, providing them the confidence to invest and hire. Biden’s proposed tax increases and regulatory agenda could have a chilling effect, they say.

With higher regulatory costs, “you’re more likely to hold onto the money you have,” says Dan Bosch, director of regulatory policy for the center- right American Action Forum.

In his initial days in office, Biden canceled the permit to build the Keystone XL oil pipeline from Canada to Texas, committed the U. S. to rejoin the Paris climate accord, and halted new oil and natural gas leases on federal land and waters – all of which reversed Trump actions to unshackle fossil fuel companies. And he ordered reviews of Trump moves to lower vehicle fuel efficiency standards, lift requiremen­ts to fix methane leaks from oil and gas wells, and streamline environmen­tal reviews of infrastruc­ture projects. The Biden administra­tion is also more aggressive­ly enforcing workplace safety standards.

It’s too early to judge the outcomes of Biden’s reviews, says Neil Bradley, executive vice president of the U. S. Chamber of Commerce, adding, “The business community wants to work with the administra­tion.” But, he says, “if we don’t get this right, it could well dampen investment and hiring.”

In the meantime, even the threat of new rules could lead companies to sit on

their hands, he says.

“There is ... an economic cost to regulatory uncertaint­y,” Bradley says.

Trump and Biden couldn’t be more opposite in their approaches to regulation. Trump was the first president to methodical­ly attack federal agency rules, establishi­ng a requiremen­t to eliminate two for every one added. Biden quickly scrapped the mandate and proposed that cost- benefit studies of new regulation­s consider benefits “that are difficult or impossible to quantify.”

Any harmful effects from even the risk of new regulation­s will be difficult to tease out in this year’s booming recovery from the COVID- 19- induced downturn, says economist Andrew Hunter of Capital Economics. Biden has helped turbocharg­e that growth, spearheadi­ng the $ 1.9 trillion COVID- 19 relief package passed by Congress in March.

The economy is expected to slow next year as the effects of the relief package fade, possibly elevating the significance of any new rules that may curtail growth. Even Biden’s $ 2.3 trillion “Build back better” infrastruc­ture proposal could be significantly delayed if officials reinstate Obama- era environmen­tal reviews that, according to the nonprofit Common Good, pushed back major highway projects an average of six years, and inflated their costs. The Trump administra­tion limited such reviews to two years and eased requiremen­ts to consider a project’s greenhouse gas emissions.

“We want to build back better sooner and not later,” says Nick Goldstein, who heads regulatory affairs for the American Road and Transporta­tion Builders Associatio­n.

The left- leaning Center for American Progress says Trump officials “gutted” the regulation­s and undermined efforts to fight climate change.

Some businesses say they’re already pulling back amid the prospect of tougher oversight.

Canty, the CEO of Alloy Precision Technologi­es, says he spent $ 8 million on factory expansions and new equipment in the Trump era but fears the pause in oil and gas leases on federal land, along with other constraint­s, will hammer his company’s revenue. Alloy Precision makes metal parts for natural gas- fueled power plants and for pressure control in oil and natural gas wells.

“If my customers can’t drill for oil and gas, I can’t sell to them,” he says.

Canty also worries about tougher workplace safety inspection­s, noting he was fined $ 15,000 during the Obama administra­tion because a plastic guard on a metal- cutting machine was oneeighth of an inch off its previous position. And he fears that Biden will make it easier for workers to unionize.

Harold Hamm, executive chairman of Continenta­l Resources, an Oklahoma- based oil and gas producer, fears Biden “is going to pile more regulation­s on and stop the positive things in the industry. … ‘ Drill, baby, drill’ is over.”

But producers such as Continenta­l are nimble. If drilling activity is restricted on federal land, where Continenta­l has about 10% of its wells, the company will simply shift those leases to private property, Hamm says.

Yet while fossil- fuel companies likely will be hobbled by more restrictio­ns, the industry’s production and jobs will be replaced by clean energy, resulting in a wash for the economy over time, Coglianese says. A report by the nonprofit Environmen­tal Entreprene­urs says clean energy already employs nearly three times as many workers as does fossil fuel extraction and generation.

“You’re going to end up with winners and losers,” the economist Hunter says of any new regulation­s.

And in the long run, renewable energy helps avoid the untold economic costs wrought by global warming through hurricanes, floods and wildfires, says Mark Zandi, chief economist of Moody’s Analytics.

Other industries are nervous about a potential rise in regulatory costs.

Bruce, who raises 50 cows in Stockton, Missouri, notes the U. S. water rules, which prohibit discharges of pollutants into “navigable waters,” were streamline­d under Trump to exclude temporary water bodies such as ditches that fill with rainwater. She’s concerned the Biden administra­tion’s reassessme­nt could revive the old rule, requiring her to obtain permits she can’t afford if she expands her herd. So she’s putting off the $ 31,000 purchase of 20 cows.

Amanda Levin, a policy analyst at the Natural Resources Defense Council, says the water rules typically exclude most pollution discharges from routine farming, such as runoff from fields.

Biden also is expected to crack down on companies that misclassif­y workers as contractor­s, denying them minimum wage, overtime and other benefits. Homer, CEO of GNGF, an 11- employee marketing agency for law firms, worries that new restrictio­ns could force him to convert a couple of his five to 10 contractor­s to employees and lay off the rest.

“It would limit my growth,” he says. Catherine Ruckelshau­s, general counsel of the National Employment Law Project, says misclassif­ying workers as contractor­s hurts the economy by denying workers higher wages and benefits.

“We don’t just want more crappy jobs,” she says.

Some entreprene­urs aren’t concerned about the prospect of more oversight. Frank Knapp, who owns a pet boarding and grooming facility in Irmo, South Carolina, says he wouldn’t mind complying with new rules, such as a $ 15 federal minimum wage, as long as his competitor­s are subject to them.

“We’re all doing the same thing,” says Knapp, who heads the South Carolina Small Business Chamber of Commerce. If his costs rise, he says he’ll simply raise prices to maintain profits.

While companies and industries are often affected by looser or stricter rules, studies say Trump’s deregulati­on didn’t move the needle on the broader economy. Several found that Trump overstated how much red tape he actually cut. Capital Economics and Goldman Sachs concluded he didn’t substantia­lly reduce regulation­s, but the flow of new rules slowed or largely stopped after creeping up for decades.

“It was the absence of new regulation­s that was a sigh of relief for small businesses,” says Holly Wade of the NFIB Research Center. Because small business owners handle regulatory compliance themselves, they had more time to run their firms, she says.

After accounting for regulation­s both added and cut during Trump’s term, there was a net savings of about $ 160 billion in regulatory costs in future years, according to an American Action Forum analysis. Another report by Trump’s Council of Economic Advisers says 20 major deregulato­ry actions will save about $ 220 billion a year after they take full effect.

Yet that’s only 1% of the $ 21 trillion U. S. economy. The Penn study also underscore­s the challenges of isolating the benefits of deregulati­on. Although lower fuel efficiency standards will bring down car prices, for example, motorists will end up spending more overall because of higher fuel costs.

All told, Capital Economics found little change in economic gauges during Trump’s term. After getting a tax cut- related boost in early 2018, business investment was sluggish the rest of that year and throughout 2019 before the pandemic. Growth in productivi­ty – or output per worker – ticked higher in 2018 and 2019, but Hunter credits low unemployme­nt that forced companies to squeeze more out of existing employees or buy labor- saving technology.

An exception is Trump’s deregulati­on of the oil industry, which appeared to lift crude production during his term, the study says. Still, drilling activity continued to track the ups and downs of oil prices. “If deregulati­on truly was revitalizi­ng the oil sector, we would expect to see drilling activity rising at a materially stronger pace,” the study says.

Overall, the economy grew an average of 2.5% a year in the first three years of the Trump administra­tion, compared to a nearly identical 2.43% during Obama’s last three years, while 1.5 million more jobs were added under Obama.

Bosch, of the American Action Forum, says that without Trump’s tax and regulation cutting, economic and job growth would have been weaker as the record- long recovery that began in 2009 began petering out.

And a report by the Mercatus Center at George Mason University argues the effects of regulation­s are nuanced, and their buildup over time “leads to duplicativ­e, obsolete, conflicting, and even contradict­ory rules” and distorts decision- making. Also, a drop in investment because of regulatory costs leaves a smaller economy that has ripple effects for decades, says James Broughel, a senior research fellow at Mercatus.

From 1977 to 2012, the study found, regulation decreased economic growth by nearly a percentage point a year.

“It’s the cumulative effect,” Broughel says.

 ?? ILLUSTRATI­ON BY COLIN SMITH/ USA TODAY NETWORK; AND GETTY IMAGES ??
ILLUSTRATI­ON BY COLIN SMITH/ USA TODAY NETWORK; AND GETTY IMAGES
 ??  ?? Homer
Homer
 ??  ?? Canty
Canty
 ?? PROVIDED BY BRUCE FAMILY ?? Kalena and Willa Bruce on the family's farm.
PROVIDED BY BRUCE FAMILY Kalena and Willa Bruce on the family's farm.

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