Covid-19 Revives Debate over Economic Benefits of Deregulation

A new panel intended to advise the White House on strategies for nursing the decimated U.S. economy back to health is poised to renew debate over deregulation, with proponents touting potential large-scale benefits for businesses and critics calling rule rollbacks the wrong prescription.

Proposals to immediately cut rules that impose costs, or significantly trim health care, telecommunications, and financial regulations, were made by conservative groups last week as reports of the new task force surfaced. President Donald Trump is expected to unveil the task force’s membership on Tuesday.

The administration is under intense pressure to find ways to support economic recovery, with the Covid-19 pandemic adding 17 million Americans to the unemployment rolls over the past month and Congress at odds over how to structure future stimulus legislation. Yet the economic benefits of deregulation, a standard lobbying pitch of business groups prior to the pandemic, have long been disputed in academic circles.

“Some economists’ first reaction to an asteroid crashing toward earth would be calling for deregulation and a capital gains tax cut,” said Aaron Klein, fellow in economic studies at the Brookings Institution. “It is an odd idea—during times of panic, people tend to value more the things that regulation provides: safety, security, certification,” he said.

At the same time, quick relief from the costs of federal regulations would speed the recovery process for many businesses and help check rising unemployment statistics, conservative organizations Club for Growth and the Competitive Enterprise Institute argued in separate proposals last week. Club for Growth cited long-disputed studies that put the estimated annual cost of regulations at $2 trillion.

Quick Fixes Sought

David McIntosh, president of Club for Growth, said in an April 8 interview with Bloomberg News that the next major virus-relief bill passed on Capitol Hill should include new authority to allow Trump to bypass lengthy rulemaking processes required by the Administrative Procedure Act.

“We propose giving the president and the agencies authority to immediately suspend costly regulations that they identify are an impediment to restarting the economy and creating jobs,” McIntosh said.

Capital requirements are snarling the rollout of the Paycheck Protection Program created in the stimulus package (Public Law 116-136) Trump signed into law late last month, McIntosh said. And regulatory reviews by the Environmental Protection Agency and the Food and Drug Administration should be done simultaneously instead of sequentially, he said.

Rules that are ripe for deregulation won’t necessarily be easy to find, and rollbacks in some cases could provide little more than a temporary fix. Agencies since the start of the Trump administration have been searching for rules to cut, and both federal and state governments have been waiving relevant regulations in response to the public health crisis.

Federal agencies in recent weeks have waived certain rules for nursing homes, expanded insurance coverage for coronavirus testing under Medicare Part B and plans purchased through HealthCare.gov, and given hospitals a reprieve from some requirements intended to protect patient privacy.

In another regulatory move, the Federal Motor Carrier Safety Administration, which oversees the nation’s professional drivers, temporarily suspended a safety law aimed at making sure drivers stay alert on the roads.

“I think agencies have already used their subject matter expertise to identify the most obvious places to look to provide regulatory relief during the crisis,” said Daniel Perez, senior policy analyst at the George Washington University Regulatory Studies Center. But there could be an opportunity to get public input to help identify further steps agencies could take, he said.

Non-Starter with Democrats

Most of these deregulatory proposals have long been on conservative groups’ wish-lists regardless of economic conditions, said Stuart Shapiro, associate dean of faculty at the Bloustein School of Planning and Public Policy at Rutgers University.

“Those that require legislative change are of course non-starters with a Democratic House and enough Democratic senators to sustain a filibuster,” Shapiro said in response to the Club for Growth’s proposal. “Many of the executive-branch changes are legally dubious and would invite immediate challenges,” he added.

The Trump administration for three years has provided regulatory relief for the American people, and many of those moves helped facilitate an all-of-government approach to the coronavirus response, a spokesman from the White House Office of Management and Budget said in an email to Bloomberg Law.

“Regulatory reform is even more important now, to allow our hospitals and doctors, our industries, and our state and local governments fight COVID and to get Americans back to work,” the OMB spokesman said.

Generally, the argument that regulation hinders economic growth is disputed, with an array of studies showing that federal rules and enforcement have positive, negative, and sometimes negligible effects on the overall economy, Shapiro said. Particular regulations burden particular industries, but regulations also yield benefits in terms of public health and safety, he said.

“The fig leaf that deregulation will help spur a post-COVID economic recovery is absurd,” said Michael Livermore, law professor at the University of Virginia School of Law.

For starters, it takes months and sometimes years to eliminate rules, Livermore said. The deliberative administrative process does not work on the same timeline as an economic crisis, and by the time a regulatory change goes into effect, the economy will be in an entirely different place, he said.

Aid Not Enough

Direct government aid won’t be enough to get the country past this health and economic catastrophe, argued Iain Murray, vice president for strategy and senior fellow at the Competitive Enterprise Institute. “We must get rid of unneeded regulations that impede recovery,” he said in releasing a report on regulations that could be cut or modified.

Among them, the FDA’s approval process for use of medicines and vaccines in clinical trials should be overhauled, while rules that prevent physicians and other health care professionals licensed in one state from providing services in another state should be relaxed, the report said.

Many other rules beyond health care could be reviewed as well, the report said. For example, the Federal Communications Commission’s grant of special temporary authority to AT&T and Verizon during the Covid-19 crisis suggests there is a need to move more spectrum into private hands, it said.

In addition, financial regulators should rescind the 2013 guidance on small-dollar lending for banks and waive or preempt state regulations on interest rates and licensing. This could create a robust and accessible lending market for distressed households, the CEI report said.

These proposals are not new, said James Goodwin, a senior policy analyst at the Center for Progressive Reform. “And if they didn’t make sense before the pandemic, they make even less sense now,” he said.

“Perhaps the biggest barrier to rebuilding our economy will be restoring the public’s trust that it is safe to resume some semblance of normal life again,” Goodwin said. “Regulations have long played this kind of role in promoting economic activity by reinforcing public confidence—that’s why we are able to get water from our taps and food off store shelves without thinking twice,” he said.

—With assistance from Erik Wasson.