Free market economists spent four exhausting years trying to explain to our students and anyone who would listen why Donald Trump’s anti-immigration and nationalistic trade policies were damaging to the American economy. At the same time, we were wary of the litany of tax and regulatory proposals coming out of the Biden camp. When someone runs for president during a recession and calls for even more punitive capital gains and income taxes, along anti-business, and anti-employment rules, it makes you wonder about their economic literacy.
So, like other pro-capitalism economists, I joined roughly 1% of the rest of the country and threw my vote away on the Libertarian candidate.
On January 20th I was happy to see Trump leave office but immediately missed one good aspect of his presidency.
On the day he took office, President Joe Biden issued a presidential memo entitled, “Modernizing Regulatory Review”. The memo was intended to ensure that every review process would reflect the latest in economic and scientific research and would fully account “for regulatory benefits that are difficult or impossible to quantify.” Furthermore, the memo insisted that these regulatory reviews not have any harmful anti-regulatory or deregulatory effects.
At the risk of insulting the intelligence of some of you who instantly know what this means, let me explain what this memo does.
Students of economics learn that rational behavior exists when the benefits of some action equal or exceed the direct plus opportunity cost. President Biden’s memo instructs regulatory authorities to consider proven benefits that the scientific and/or economics community has established, THEN search for benefits that cannot be measured easily, or at all. While this is taking place, the reviewers are instructed to ignore the opportunity costs of pursuing any efforts that would lead to less regulation.
This is akin to you seeing a shirt that you know is worth $20 to you. You then add to that $20 another $5000 in made up benefits that would come from the shirt helping you land a job as CEO of Google. If the shirt costs $120 you then ignore the second-best choice for how to use that $120 and buy the shirt anyway because the known benefit ($20) plus the impossible to measure benefit (the odds of landing the job) are greater than $120.
The Biden memo charts a new course towards greater, arguably irrational, but inarguably expensive, new regulations.
What everyone should understand is that economics policy does not take place in a vacuum. Every regulatory decision handed down by executive order or Congressional action is a new cost imposed on business firms and individuals. Those costs have measurable effects on job creation, entrepreneurship, prices and more.
By ignoring the basic facts of proper cost-benefit analysis, the Biden Administration is charting a course that makes economic recovery more difficult in the short run and economic prosperity less likely in the long run.
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