11 May As the Pendulum Swings

“Regulatory whipsawing is undermining American business.” – The Lonely Realist

Consistency in policy and law-making provides the optimal foundation for strong economic growth. Uncertain government policy inhibits economic planning and therefore is business’s bane. Alternating political party Presidencies over the past 32 years provide a demonstrably damaging example of uncertainty, the debilitating consequences of which are found in the policy reversals that began when Republican President Bush1 was followed by Democrat Clinton, Republican Bush2, Democrat Obama, Republican Trump and Democrat Biden. The recurring changes in Presidential agendas and policies, with on-again, off-again regulatory and enforcement strictures, have haunted business planning and, consequently, stunted American economic progress. How can American industry realize its full potential when planning for even the near future – between 1 and 4 years away – is subject to sudden and radical change?

The uncertainty arising from Presidential roulette isn’t a new feature of American democracy. It nevertheless has become far more extreme problematic in recent years.

The conventional wisdom is that Democrats want to expand government by sweepingly over-regulating and Republicans want to devastatingly gut government through sweeping de-regulation. That’s an oversimplification, a consequence of political propagandizing. Each political party pursues policies to further its voter appeal with a focus on its partisan base, as TLR has highlighted. It nevertheless is true that traditional Democrats believe that government more often knows better than the “invisible hand” of capitalism, especially in determining how best to balance public protection and safety against the costs and burdens of bigger government. It also is correct that traditional Republicanism (which is not currently in vogue) favors the “invisible hand” over bigger government, at least when constituent special interests aren’t threatened. Today, however, extremist populism has made “traditional” political partyism archaic. Although there most certainly are differences between the extremist populist agendas of Progressive President Biden and MAGA President Trump that contrast big vs. small government (when convenient), greater vs. lesser regulation (when convenient), Federal Statism vs. State Statism (when convenient), etc., there’s a range of optimal balancing that the two parties should be pursuing…, but aren’t (with the Biden Administration hell-bent on protecting its constituency from a successor Trump Administration by loading up the regulatory truck). For example, welfare programs can provide a safety net for the economically disadvantaged without incurring the currently high level of costs, which should be among the shared goals of the two parties but which neither cares to pursue. It also is true that tariffs and subsidies can protect strategically important American industries and interests without unnecessarily increasing consumer costs and warping capitalist competitiveness, which again would be consistent with each party’s stated goals and yet offend sub-constituencies. Taxes, education, labor relations, climate issues, etc., have the potential for rational resolution, but all are thwarted by today’s extremist gaming.

Democrats believe that there are gaps in the regulation of business and industry that need to be filled while Republicans believe that there already are too many existing fillers. Yet this hasn’t been reflected in significant differences between Democrat and Republican policy execution or in the exercise of Executive Power. Until recent years, Democrat Administrations added little more to regulatory overload than Republican Administrations … and Republican Administrations didn’t actually reduce regulations. For example, the American Action Forum calculated that the Bush2 Administration added net regulatory costs of $43 billion, the Obama Administration added a further $111 billion, and the Trump Administration, which prided itself on reducing government regulation, instead added a further $10 billion. The contest therefore has not been between regulation and de-regulation. It instead has been a competition between Democrats seeking votes for creating and enforcing their brand of “good regulations” and Republicans seeking votes for creating a different brand of “good regulations” while ignoring (not “gutting”) Democrat-sponsored regulations. All is a scattershot, unfocused, draining policy seesaw.

This is the conclusion reached by Pew Research, which found that although a majority of Americans prefer smaller government and reduced business regulation, those same Americans favor increasing their own protections and benefits, hardly a surprise. A policy of de-regulation and a policy of targeted regulation each therefore is a populist success…, until it isn’t, which explains Congressional confusion. That’s precisely why characterizing Democrats as over-regulators and Republicans as under-regulators is misleading. Each is playing to its particular, and often local, constituency. Yet, after all, having those two opposing perspectives is supposed to be a cornerstone for successful American democratic compromise in the national interest. Not today though.

A carefully researched Heritage Foundation study, “How Regulation is Destroying American Jobs,” argued that “many regulations directly increase the cost of employing workers and thereby act like a hidden tax on job creation and employment.” What a fabulous incentive for government action! Although increased costs reduce growth, those regulations also protect workers. (The same tradeoff that is true in virtually every facet of business including, for example, banking: Banks are heavily regulated not because regulation is good, lending is dangerous or bankers are poor lobbyists, but because of the need to protect depositors from bank defaults.) How to balance economic growth and public protection? Such a balancing is what government is all about and, yet, the process has become a choice between political constituencies. Would you be surprised to learn that the Heritage Foundation study was conducted in 1993, more than 30 years ago…, prior to the period when America’s economy created jobs and growth at a heady pace? Nothing came of it. Imagine how America’s economy might have grown had the two political parties reached agreement on a consistent, multi-Administration policy that would have encouraged greater employment growth? Imagine the effects if the two parties were to do something similar today? The word for that is bipartisanship!

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Finally (from a good friend)