The Perils of Deregulation

By Will Huang

The Tower (Princeton, NJ)

“Trump signs executive order requiring that for every one new regulation, two must be revoked.”

As I read this headline, I chuckled. Either Andy Borowitz or the writers at The Onion really outdid themselves with this over-the-top, satirical piece, I thought. The only problem: it turns out it wasn’t from a satirical source. Instead, my dumbstruck friends and I found ourselves staring at the news publication Politico’s most recent article. Focusing on reducing business regulations and corporate taxes, it’s been dubbed by Hillary Clinton as “Trumped-Up Trickle-Down Economics.”

graphic by <span class="credit credit- "><a href="/credit/"Nicole/" title="View all of this person's work">"Nicole</a></span>

Even in Euro Challenge, one of our go-to policy recommendations each year has been to “cut red tape” for businesses in order to increase business productivity, attract foreign direct investment, and in turn grow the economy. We frequently create solutions that emulate Ireland’s business policies, whose controversially low corporate tax rate of 12.5% attracted high levels of foreign direct investment and made it one of the fastest growing economies in Europe. Markets have been bullish after Trump’s inauguration, with the Dow-Jones Industrial Average surging to new highs.

Yet, Trump’s extreme plan raises some serious societal issues. For one, the idea that a rising tide lifts all ships, and everyone guaranteed to be better off with a growing economy, is a misconception. Rapidly expanding businesses creates job openings, but people certainly aren’t better off if they don’t have the skills to fill them. Indeed, The New York Times found that while average incomes adjusted for inflation grew by 61 percent between 1980 and 2014, nearly $7 out of every additional $10 went to the top tenth of the income scale.

Cutting corporate taxes alone exacerbates income inequality by reducing the revenue available to spend on social programs that combat it. Many of President Trump’s disgruntled populist supporters may be in for a rude awakening as large businesses prosper, and they continue to be left behind. Implementing strong vocational training and higher-education programs like the ones that fuel Germany’s powerhouse economy and low unemployment rates is key to reducing such inequality.

Though I’ve supported policies to streamline regulation in European economies, I’m incredibly uncomfortable with Trump’s plan to cut 75% of regulation. Without proper oversight, businesses simply cannot be expected to always act in the best interest of society. Take minimum wage regulations increase costs of production for businesses, but ensure that workers are paid a living wage.

Many of the regulations Trump seeks to eliminate play similar roles. The Dodd-Frank Act prevents banks from trading securities more competitively but also prohibits predatory lending practices that created the 2008 Financial Crisis. Environmental regulations create losses in productivity, but they also keep air and drinking water clean. In all these cases, repealing such regulations would create unthinkable harm.

There is merit in the approach of cutting taxes and reducing regulations to bring economic growth—if done in moderation. But if these policies become so radical that you have to ask yourself “Satire or Real News?” chances are they create more harm than benefit.

Photo Credit: 401(K) 2012


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