Government regulations aren’t popular, but we will miss them
It is an article of faith among economic conservatives that government regulation stifles industry and trammels growth. They cheer the war on regulation being waged by the Trump administration, which claims that 13 rules are being killed for every new one enacted. They love the cratering of enforcement actions by watchdog agencies; the shredding of protections for consumers, workers, and the environment; and the premature death of nearly all new regulations created near the end of Barack Obama’s term. A recent report by Trump’s Council of Economic Advisers predicts all this deregulatory zeal is on track to save $3,100 per household after 10 years. Not to mention the expected boost in profits and CEO stock bonuses.
But not all regulations hurt business, and weakening them can be a dangerous idea. Take Boeing as a case in point. According to eye-opening reporting by The New York Times and others, lax oversight at the Federal Aviation Administration contributed mightily to Boeing’s fatal missteps with its new 737 Max airliners. Reporters found that the FAA had never independently reviewed the software that sent Boeing’s airliners into uncontrollable nosedives on two separate flights, killing all 346 people aboard. Instead, FAA managers allowed Boeing’s own engineers to test and approve the software. Delegating supervision of the henhouse to the foxes in this way began before Trump took office, but it accelerated as Boeing pressed for regulatory relief to help meet its deadlines and budget on the 737 Max project.
Now Boeing may be wishing the FAA regulators weren’t quite so hands-off. Its stock has collapsed since the two accidents, vaporizing billions in value. Last month, Boeing reported its worst quarterly loss ever, with earnings 275 percent below those of the same quarter in 2018. The 737 Max remains grounded, and the company may have to shelve the costly new plane altogether. Boeing faces a raft of lawsuits from grieving families of the victims, and even from stockholders.
Similar tales of weakened regulation leading to business calamities can be found in the health care, finance, and other sectors. The complex tangle of causes associated with the opioid crisis includes at least in part the limited role of the Food and Drug Administration, which does almost nothing to police a drug’s use or abuse once it has been approved for the market. The Drug Enforcement Administration issues guidance to distributors about flagging “suspicious orders” from pharmacy chains or others, but it couldn’t keep pace with the flood of violations. Pharmaceutical companies pushed doctors to prescribe opioids, promoting — and funding — studies that underplayed the risk of addiction. Now 48 states are suing Purdue Pharma, maker of the drug OxyContin, and the private company is at risk of bankruptcy.
Stricter government oversight doesn’t just save business from legal liability; regulations also protect a firm’s reputation. Would the Sackler family — owners of Purdue Pharma — be watching their name get ripped off galleries at the Louvre if the company’s behavior had been better regulated in the first place?
These are examples of individual businesses that suffered from weakened oversight, even as they demanded it. But the costs of deregulation are also socialized throughout the economy. Trump’s dismantling of emission standards for tailpipes, power plants, and methane almost certainly will provoke costly environmental damage — floods, fire, drought — associated with climate change. America’s essentially unregulated private health care system is a drag on US competitiveness, since it gobbles up 17 percent of GDP while still ranking below other advanced nations in infant mortality, life expectancy, and other measures of public health. And need we revisit the dire effects of deregulating the banking and mortgage industries?
Anyone who has ever tried to build a backyard deck has been frustrated by seemingly inane government requirements and paperwork. But in cases where lives are at stake, it’s precisely the economic “friction” regulations create that slows things down long enough for one more safety check. Trump’s war on red tape may be a rousing cause, but thoughtful deregulation requires a surgical touch, and Trump, characteristically, is using a machete. Meanwhile health, safety, and yes, businesses are put at risk. Government regulations aren’t popular, but we will miss them when they’re gone.
Renée Loth’s column appears regularly in the Globe.