The Danger of Deregulation

Many have applauded President Trump’s stated objective to “massively” reduce regulations. Certainly, fewer regulations are better than the mountains of controls and prohibitions that currently stifle American businesses. But reducing regulations is not the panacea some might believe.

Consider the Environmental Protection Agency as an example. Last week, Scott Pruitt, the head of the agency, indicated that he would be curtailing regulations that control electricity generation and other Obama-era regulations. He went on to say, “Right now the focal point I think as we get into the agency, one is dealing with these regulations I think are an example of regulatory overreach.”

To free market advocates, this might sound like a step in the right direction. Unfortunately, it is only a step. What is really needed is a giant leap–the abolition of the EPA.

Neither Pruitt not Trump questions the need for government controls and regulations of business. They only question those regulations that go “too far.” But like many terms used in political discourse, “too far” is never defined. All it means is that the speaker finds a particular regulation distasteful.

The danger of deregulation is that it only addresses details, rather than principles. So long as the principle of government regulation is accepted, Pruitt and Trump can only bicker over which regulations are “excessive” and which are not. And that brings us to the real danger of deregulation.

Deregulating is not the same thing as unregulating. Deregulation does not abolish the regulatory agency, but merely reduces its powers. Which means, the next regime can simply expand those powers again. For statists, deregulation is merely a temporary setback.

Further, most deregulation is accompanied with new regulations. As an example, when California deregulated its wholesale electricity market, it capped the price that retailers could charge end users. When demand spiked in the early 2000s, retailers were forced to sell electricity for less than they were paying for it. The result was a series of bankruptcies and power outages.

Uninformed citizens ultimately blame the failures of deregulation on the free market, rather than the continued meddling of politicians and bureaucrats. And that inevitably leads to further regulations to “correct” the distortions caused by previous controls.

In truth, as a matter of principle all regulations are excessive.

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