Deconstricting the Administrative State

Donald Trump promises that his deregulatory agenda will lead to a boom in jobs. The real effect will be the opposite.

Via Washington Monthly

As Oklahoma’s attorney general, Scott Pruitt was a bitter opponent of the U.S. Environmental Protection Agency (EPA), which he sued repeatedly while in office. Now, as President Donald Trump’s pick to run this very agency, Pruitt has leaped at his chance to sabotage it from within.

Days after his confirmation as EPA administrator, Pruitt told the Wall Street Journal that the agency might lack authority under the Clean Air Act to regulate greenhouse gas emissions—something the EPA has been doing for most of the last decade. Soon thereafter, he halted pending rules requiring oil and gas producers to disclose their methane emissions, ordered a “review” of the EPA’s proposed Clean Power Plan, and declared an end to the “regulatory assault” on industry.

Pruitt’s efforts to hobble the EPA are in line with Trump’s broader vendetta against “job-killing regulation,” a signature initiative of both Trump’s campaign and presidency. “Excessive regulation is killing jobs, driving companies out of our country like never before,” said Trump in February.

But that’s not how the entrepreneurs at NBD Nano-technologies see it.

The Boston-area start-up (“NBD Nano,” as it calls itself) arguably got its first big break as a result of exactly the rules Pruitt is working so hard to undo. After the EPA announced, in 2009, its intention to regulate greenhouse gas emissions, including the emissions of coal-fired power plants, power companies started scrambling for ways to burn less coal.

One strategy companies began exploring is how to make the steam turbines that generate electricity more efficient. Much of what a power plant does is heat water into steam, and a major source of inefficiency is the time it takes to condense steam back into water before it’s reheated.

Enter NBD Nano.

In 2013, the company won a small grant from the National Science Foundation to see if its products—oil- and waterproof industrial coatings—could help power plants convert steam into water more quickly. The company found that using its materials to coat the thousands of copper tubes that line a power plant’s “condenser box,” where steam is captured and cooled, dramatically speeds up condensation by encouraging water droplets to form more quickly and at higher temperatures. That means power plants can use less fuel to reheat the water into steam.

After the company won a second grant in 2015 to help commercialize its technology, it began piloting its coatings at a power plant run by the Tennessee Valley Authority. So far, results have been good. “We’re now in the process of rolling it out globally to power plants around the world,” said Timothy Evans, NBD Nano’s vice president of sales.

Regulation, says company cofounder and president Deckard Sorensen, is the catalyst that prompted bigger companies to seek him out. “Large companies don’t necessarily have the capability to develop innovations in-house,” said Sorensen, who launched NBD Nano while still an undergraduate at Boston College. “So they look for entrepreneurs [to help them] align with regulations. It facilitates these larger companies being willing to work with small companies at an earlier stage.”

Now with twelve employees, NBD Nano’s early win has allowed it to set its sights on broader horizons. One of its products, a glass coating called RepelShell, could soon be standard on your car’s windshield and windows. Sorensen says the company is also working to produce smudge-proof touchscreens for smartphones and tablets (this writer will be first in line), and mud-proof soccer shoes are already in the works.

NBD Nano’s story is not a fluke. Federal regulation—especially when crafted with sensitivity to market needs—is the visible hand behind many new products, technologies, and industries benefiting both consumers and the U.S. economy.

Thinking about swapping your clunker for a Tesla? Electric cars would not be as readily availableas they are today without the tougher federal fuel economy standards that helped spur their development. Tesla is now America’s second most valuable car company, after GM, with a market value of $48 billion—testament to the potential investors see in this sector.

The same goes for the solar panels you might be contemplating for your roof. In 2007, as part of broader energy legislation, Congress passed a federal “renewable fuels standard” requiring renewables to replace a certain amount of traditional fossil fuel. The regulation has been a boon for solar and wind, as well as for nascent technologies such as bio-fuels, which could someday supplant coal, gas, and oil with fuels made from algae and garbage. In the solar energy sector, for example, the Solar Foundation estimates that 260,000 Americans held solar-related jobs in 2016, an increase of 25 percent over 2015.

Even the pieces of legislation most despised by the current GOP-controlled Congress—such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Affordable Care Act (ACA)—have sparked a wave of innovation and entrepreneurship. For example, you may have noticed a surge of new offerings in your smartphone’s app store for money management tools, like Betterment, an automated investment app that charges lower fees than traditional mutual funds, or Digit, a savings app that automatically transfers small amounts of money into your savings account, depending on your spending patterns. One reason apps like these are increasingly available is because the big banks no longer have a monopoly on your bank account information—a provision in Dodd-Frank gives you the right to control that data, including the right to grant third-party companies like Betterment and Digit permission to access it. It’s the reason why the fast-growing financial technology (“fin-tech”) sector is now fighting to save Dodd-Frank.

The ACA, meanwhile, has helped launched such new firms as Zenefits, a San Francisco–based health insurance broker for small employers that grew to 900 employees in the two years following the passage of the law. The surge of new consumers created by the ACA, along with the law’s new mandates, helped create at least ninety new health-related companies, according to a 2015 report by PricewaterhouseCoopers (PwC), including firms that deliver telehealth services to patients and help doctors provide better care to people with chronic diseases, in addition to companies like Zenefits. According to the PwC report, venture funding for digital health start-ups also hit an all-time high in 2014, north of $4 billion.

All of these stories run counter to the dominant political narrative of regulation as a deadweight on the economy. This belief is gospel on the corporate-controlled free market right, and even liberals defending regulation seldom do so in terms of its broader positive economic impacts. With the sole exception of clean energy, where liberals have readily touted the link between regulation and jobs, you will look in vain for a progressive politician who more generally defends regulation as an instrument of innovation and economic growth. Rather, the prevailing frame is that of regulators as guardians of public safety and health. The same is true of the liberal advocacy community. “Public health, safety, pocketbook and environmental protections are being wiped out as payback to the GOP’s corporate donors,” warns the website of Rules at Risk, an umbrella campaign by progressive groups. This is true enough. But nowhere on the website does the group make a full-throated argument for how regulations benefit the economy as a whole. By ceding the economic argument, liberals have effectively allowed the debate on regulation to be framed as one of jobs versus safety, growth versus health. Voters are left believing that they have to choose between the two—a false choice that also gives the advantage to the GOP as the better champion of jobs and economic growth.

With Republicans now in control of both Congress and the executive branch (not to mention a renewed conservative majority on the Supreme Court), a reactionary assault on regulation that’s been contemplated for years could come to pass as early as this year. In fact, this hammer blow—part of what White House strategist Steve Bannon calls the “deconstruction of the administrative state”—is more likely to happen than the other high-profile priorities, such as tax reform or ACA repeal, that garner far more media attention.

While Trump has brandished a series of anti-regulation executive orders—such as a requirement that agencies get rid of two old regulations for every new rule issued—the real action is in Congress, which has moved aggressively to enact an agenda that could paralyze federal agencies and bring all regulatory work to a halt. And with Democrats defending twenty-five Senate seats next year, including ten in states won by Trump, the temptation for vulnerable senators to support these measures will be fierce. In North Dakota, for example, embattled Democratic Senator Heidi Heitkamp is among the three current cosponsors of the Regulatory Accountability Act, one of the principal proposals being advocated by congressional anti-regulationists.

Anti-regulation conservatives sell their agenda with the promise that it will help business and spur growth. What they—and many liberals—fail to acknowledge is that regulation, far from being a drag on economic growth and competitiveness, often provides the infrastructure necessary for growth and innovation to occur. It eliminates the uncertainty that can stifle investment, sets minimum standards for the smooth running of markets, and husbands the birth of new industries by setting goals that demand innovation to achieve. Gumming up the regulatory works and slowing or even stopping the rule-making process, on the other hand, raises risk and stifles innovation by erasing the market signals that industries need. Trump and his allies promise that their deregulatory agenda will lead to a boom in job creation. The real effect will likely be the opposite.

Continue reading at Washington Monthly

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