Is the Missing ERP Revealing Bad News about Biden's Health?

15 USC 1022(a) requires

"The President shall annually transmit to the Congress not later than 10 days after the submission of the budget ... an economic report (hereinafter in this chapter referred to as the “Economic Report”) together with the annual report of the Council of Economic Advisers...."

Because the budget was submitted March 28, 2022, yesterday was the due date for submitting the 2022 Economic Report of the President.   No report has been released in 2022 and neither the White House nor news media have said anything about this year's report.

CEA, like many other government agencies, is funded with public money.  It should perform its duties as directed by the public through the statutes duly enacted by its representatives in Congress.

Moreover, CEA is unique from most of the rest of the Executive Office of the President in that it is explicitly created and directed by federal statutes.  As it should, this unique statutory basis has elevated CEA's influence within the White House.  But if CEA does not comply with the law, what stops the rest of the bureaucracy from treating CEA as just one of many White House Offices and Councils whose entire existence could be erased at the whim of the President or senior staff?

Why the lack of compliance with 15 USC 1022(a)?  Here are my guesses, beginning with those I assess to be most likely.

• Biden, who must at least meet with CEA and sign the report, is too feeble to perform all of the duties required of him by law and politics.  Senior staff have made the tough decision as to which laws will not be followed in order to reserve Biden's energy for other duties.
• I am not the only one to notice that it has been a month since Biden had anything on his public schedule later than mid-afternoon.
• This theory predicts that no EOP employees get fired.

• Biden's senior staff views statutes as mere suggestions, and therefore even a minor logistical challenge would be enough to ignore 15 USC 1022(a).
• This is consistent with the fact that the FY 2023 budget (an OMB product) missed the statutory deadline too, which has occurred before when a President was just coming into office or when the deadline occurred during a government shutdown but (I think) is otherwise unprecedented.
• Expected punishment is low, under the theory that a Democratic Congress would not hold a Democratic administration accountable.
• This possibility is the worst for (among other things) the CEA as an institution because then CEA itself becomes a mere suggestion.

• The draft ERP, which likely began in early 2021, contains something that in hindsight is terribly embarrassing to the Biden administration.  It either needs to be rewritten or released on a day when other news distracts all of the attention.  This is bit unlikely, because the embarrassment would have to be something that the ERP covers that the (much longer) President's Budget does not.  On the other hand, this explanation is complementary with the Biden-debilitation story because likely the President would be needed to adjudicate a serious dispute among senior staff.  [More generally it would be interesting to know how disputes are resolved when POTUS is debilitated.  Does VPOTUS help?]

• The current CEA is unaware of 15 USC 1022(a) and what actions are required to comply with it.  I doubt this because the CEA chair, Cecilia Rouse, was a CEA member who had helped prepare two prior ERPs (2010 and 2011).

• The current CEA is aware of 15 USC 1022(a) and the actions are required to comply with it, but proved incapable of doing its part.  I doubt this even more because that puts the President in jeopardy and an army of former CEA staff could have been called to help on a volunteer basis.  More time could have been obtained by going downstairs and asking OMB to delay its budget release, which itself was already past the statutory deadline.

• Progressives in the administration have objected to even the mildest citation of unintended consequences and the law of demand (mild enough that even Jared Bernstein insists that they be mentioned).  Such objections could likely exist, but very unlikely stop the lawful ERP transmittal because
• The CEA chair had much time to engage in earnest debate with the rest of the administration  (as CEA 45 often did, sometimes for more than a year).  In the end she could assert her statutory authority to issue the ERP as she and POTUS see fit.
• Possibly the CEA chair would be willing to fudge the economics for the progressive cause, and therefore the dispute would not be reason to miss the statutory deadline.

Even if the 2022 ERP is transmitted to Congress next week, it will be more than 100 days into the calendar year, as compared to the previous "record" (lawfully) set in 2019 on the 78th day of the year.  96 percent of all previous ERPs (75 in total) had been transmitted by February 23, which is the 54th day of every year.

Update: ERP 2022 was electronically transmitted April 14, 2022, which was the 104th day of the year and 17 days after the budget submission.

• The Joint Economic Committee is the statutory Congressional receiver of the annual ERP.  The hard copies, which is usually provided to JEC on the official "day of transmittal," was not delivered until April 25, 2022.  This observation adds support to the Biden-disability theory because POTUS at least signs the hard copies.
• On the other hand, the excellent CEA45 production editor, Al Imhoff, also served in that role for ERP 2022 (see p. 345).  The fact that a second production editor was hired (Kellam worked on Obama-era ERPs) suggests that CEA46 was so late writing its chapters that there was no time for Imhoff to serially process them as he did for CEA45.  This hypothesis is also consistent with the fact that many more of CEA45's chapters were released as stand-alone public reports throughout the year (Imhoff was copy editing many of those too), some of which could be entered into ERP production 4-5 months ahead of the statutory deadline.

White House Economic Analysis of Ukraine

The 2019 Economic Report of the President includes the most extensive economic analysis of Ukraine of any President going back at least to Truman.  It discussed:

• Historical harms -- including murder -- imposed on Ukraine by Moscow (Chapter 8),
• The extensive costs of the collective ownership imposed on Ukrainian agriculture, asking why would collective ownership of healthcare work out any better if the economic incentives were the same (Chapter 8),
• How the New York Times covered up and lied about events in Ukraine because the events were incongruent with the leftist fantasies of many of its readers (Chapter 8).  Pulitzer Prizes were awarded for those lies!
• Ukrainian energy trade (Chapter 5).

Below is one of the charts from the 2019 ERP.

Ukraine was never even mentioned in an ERP between 1947 and 1992.  Nor were any related keywords (see below).

• The 1993 ERP noted that Ukraine was among former Soviet republics issuing its own currency in 1992 (pp. 304-5).
• The 1994 ERP noted that "[CEA member] Stiglitz traveled to Russia and Ukraine and established an official relationship with the Russian Government's Working Center for Economic Reform." (p. 256)
• The 1995 ERP noted that the U.S. engaged in several bilateral investment treaties, including "treaties with the former Soviet republics of Georgia, Ukraine, and Belarus." (p. 249).
• The 1997 ERP cited Ukraine in a list of many countries allocated "U.S. non-military bilateral aid" and that in the case of Russia and Ukraine, this aid was for "public health programs" (pp. 264-5).  It also cited the "explosion at Chernobyl" as part of a paragraph about "how developing countries treat their environment."  [I wish the 2019 ERP had included a section on environmental stewardship by socialist countries, but the idea did not occur to me until much later.  The environmental rhetoric was much the same as modern-day socialists'].
• On page 167 of the 1998 ERP, it was noted that Ukraine was one among several countries assigned "less stringent" emissions limits by the Kyoto protocol.  On page 259, a large list of countries receiving U.S. aid was listed, including Ukraine.
• On page 290 of the 1999 ERP, it was noted that currency boards have been recommended for countries such as "Indonesia, Russia, and Ukraine."
• Page 260 of the 2001 ERP reports that CEA "initiated a new dialogue with economic officials in Ukraine."
• Page 131 of the 2005 ERP includes a box about "The Benefits of Land Titles."  Several countries are mentioned in the box, with Ukraine as one of those where "entrepreneurs believe their property rights are secure [and therefore] reinvest ... back in their business."
• In a paragraph about the "disadvantages to nuclear power," p. 172 of the 2008 ERP cites the "Chernobyl nuclear power plant in Ukraine."
• The 2010 ERP notes the rapid deprecation of "the currencies of Hungary, Poland, and Ukraine" (p. 86).
• A footnote on p. 130 of the 2012 ERP explains which countries are included in its emerging markets index.  Ukraine is one of 21.
• Figure 1-4 of the 2014 ERP has international comparisons of quarterly real GDP time series.  Ukraine is one of the countries included.  A similar chart is repeated on page 117.

This post was based on text searches for "Ukraine", "Ukrainian," "Holodomor," "Kyiv," "Kiev," or "Chernobyl" in the 1947-2021 ERPs.

The Most Tardy ERP in History

The White House Council of Economic Advisers' Annual Report, a.k.a., Economic Report of the President, has not yet been transmitted to Congress as of today, the 89th day of 2022.

This is the latest ERP transmittal ever, with the previous record being 2019, which was transmitted on the 78th day (signed on the 77th -- see photo below) following a prolonged federal government shutdown.  

By law, the ERP must be transmitted to Congress annually.  Initially, the deadline was within 60 days of when Congress began its regular session, which is typically January 3.  In 1978, that deadline was shortened to 20 (?) days.  In 1990, and still today, a 10-day deadline is triggered by the President's Budget submission rather than the Congressional session.  That submission occurred on March 28, putting the 2022 ERP deadline at Thursday April 7, 2022.

Unless the law is to be broken by a wide margin, the 2022 ERP will be the first ever issued in April.  It will be only the 4th of 76 to be transmitted after February 23.

White House Attitudes toward Fraud: Evidence from 75 ERPs

Judging from their Economic Reports, few Presidents have given much thought to the problems of fraud.  When they do, typically private sector fraud is cited as a reason for government regulation.  Prior to 2019, ERPs rarely included analysis of incentives to prevent fraud, and never explained why those incentives would be different when the victim of fraud is a private entity as opposed to taxpayers.  Does this reflect a (noneconomic) view that fraud is a consequence of bad people rather than poor incentives?

ERPs hardly mentioned fraud before Clinton.  His ERPs cite financial fraud (especially credit card fraud, which had grown with the industry itself) and healthcare providers that fraudulently miscode treatments in order to enhance their receipts from government and other insurance.

George W. Bush has two interesting chapters on "The Tort System" (2004, explaining how the threat of future tort damages is a disincentive for fraud) and, following the Enron scandal, a chapter on "Corporate Governance" (2003).  These are the two exceptions where incentives are noted, although the analysis is not applied to frauds perpetrated against taxpayers.  Bush's ERPs also discuss fraud in the growing ecommerce industry.

The Affordable Care Act was sold on many false pretenses, one of which is that it would be cracking down on fraud.  President Obama's ERP repeated this talking point in 2010, 2011, and 2013 without an analysis of what the ACA was actually doing to incentives to perpetrate fraud or to incentives to prevent it.  Here is a clip of President Obama himself bragging about "cracking down on fraud."

A prime example of what was missing: the fact that the states, which administer eligibility for Medicaid, would have hardly any financial responsibility for the new parts of Medicaid (by no coincidence, the new parts require more effort to police eligibility).  Are we surprised that in reality "Improper Medicaid Payments have Soared Since Obamacare"?  More well known is the "epidemic of identity theft" that followed the opening of ACA insurance applications.

In a chapter about the Economics of Socialism, the 2019 ERP discusses the incentives associated with  "spending other people's money on other people."  On this basis, government health insurance programs are not expected to put much effort into policing fraud -- turning down a legitimate claim makes for political embarrassment whereas quietly paying a fraudulent claim falls on the taxpayer who has no part in managing the plan.  While they brag about "low administrative costs," the government plans are implicitly acknowledging how little effort they put into administration as compared to plans with a profit motive or that must attract voluntary consumers with low premiums.

Although it does not discuss the incentives, the 2016 ERP offers an empirical observation along these lines.  Several pages discuss the lightly regulated "On-Demand Economy," and compliments private industry for innovative ways (especially, rating systems) of reducing fraud against the consumer.

The 2018 ERP included a popular chapter about cyberthreats.  Another half chapter followed in 2019.  The 2021 ERP looked at the role of trade agreements with China in encouraging them to partner with the U.S. in preventing cyber-theft.  It also looked ahead to infrastructure investment, including attention to cyberthreats.

President Biden's economic team may not be in a good position to consider fraud.  So far it has emphasized setting records on metrics like the size of the weekly unemployment benefit, the speed of delivering stimulus payments, and the number of people participating in the programs.  Nigerian criminals have found Biden's appointment for administering federal UI to be an especially incapable gatekeeper.  She will have near veto power over anything Biden's economic team publishes on this subject.

2021 has begun with another epidemic of identity theft, especially in blue states.  President Biden's economic team can help, if they are willing and able.

[Some economists may say that fraud is just a transfer and therefore that policing fraud is a social waste (from a worldwide perspective).  But the criminals also use resources in their craft, not to mention that the funds they steal must be extracted from taxpayers which involves another deadweight cost.] 

White House Attitudes toward "Screening Agencies" (looking at you FDA)

The Food and Drug Administration (FDA) has been part of many conversations in 2020.  To the great frustration of tens of millions, it has to approve COVID tests and arguably applies the wrong (from economic and health perspectives) standards in doing so.  It is also tasked with approving COVID treatments and vaccines.  Vaccine approvals came much quicker than experts expected, although IMO not quickly enough.

With few exceptions, economists have “long been aware that the agency causes unnecessary deaths and suffering by” its “inexcusable delays in approval” (see esp. Klein and Tabarrok's collection).  Judging from 74 years of Economic Reports of the President, the White House has not traditionally given this issue much attention.  When the FDA does appear, the sentiment generally confirms that the approval delays are harmful and need reform.

Alan Greenspan's CEA was the first in 1975, when it included a paragraph about Sam Peltzman's famous study finding that the 1962 amendments were harming consumers.  A sentence of the 1977 ERP lamented further FDA bans.

Ronald Reagan's ERPs gave the issue more attention, and more bluntly.  "Screening agencies can dramatically affect the rate of innovation. A case in point is the Food and Drug Administration" it said in 1989, as part of a three-page section on the subject (pp. 218-20).  A sentence in the 1987 ERP noted how badly FDA regulation was failing cost-benefit analysis: "the average cost per life saved varies across regulations from as little as $100,000 for NHTSA's 1967 steering column protection rule to $132 million for the Food and Drug Administration's 1979 ban on diethylstilbestrol (DES) in cattle feed." (p. 183)

Both Presidents Bush included a sentence on the issue (1993 and 2001).  Consumer harms from FDA regulation was certainly top of mind for Mark McClellan, who was a member of the CEA at the beginning of the GW Bush administration until in late 2002 when he went on to head FDA.

Janet Yellen's CEA had a full chapter about regulation (Chapter 5 of 1998 ERP), especially climate change, which generally expressed the view that more federal regulation is needed.  Interestingly, five pages of that chapter express some sympathy for the view that FDA has overregulated.  It notes (p. 188) that FDA has been biased toward stopping "unsafe drugs that may cause injury or death" at the expense of "preventing sick people from getting more effective treatment."  The bias is especially questionable, it says, in the context of a life-threatening illness.

The historical context may be especially relevant to understanding ERP 1998: Yellen's boss President Clinton was dealing with a Republican Congress led by Newt Gingrich.  Both Republicans and AIDS advocates wanted to reduce FDA approval delays (the FDA review times for the AIDS treatments were still much longer than those under 2020's Operation WARP Speed), sponsoring the 1997 FDA Modernization Act that President Clinton signed.  The FDA would ultimately, as Scott Gottlieb put it, “steadily disregard[] many of the law’s provisions.”

I see only two exceptions in the 74 ERPs.  President Kennedy signed the Drug Efficacy Amendment that Peltman would later find to be so harmful.  The 1963 ERP characterizes the amendment as "protecting public health."

The second exception is the Obama Administration.  The 2012 ERP cites the FDA as a prototype of "a Smart Approach to Regulations."

By comparison to all previous administrations, President Trump's White House was arguably obsessed with FDA harms to medical innovation from the very beginning.  FDA critic Scott Gottlieb was immediately appointed to head the FDA.  The 2018 ERP had a full chapter about the health sector, half of which was about "Improving People’s Health through More Access to Medical Innovations" and "Encouraging Innovation, and Making It Affordable."  The 2019 ERP (p. 18) cites FDA deregulation as one of the highlights of the year, and devotes twelve pages to how FDA reforms increased competition and reduced prescription drug prices.  The same report also looks at the possible negative innovation effects of a proposed Federal ban on for-profit healthcare, which even Vox acknowledged as "a plausible downside."

The 2020 ERP updated the status of the FDA reforms in its chapter about deregulation, its chapter about healthcare, and its chapter about competition policy.  It also cited the new Right to Try law, and regulatory barriers to treating chronic kidney disease.  FDA barriers were part of the discussion we had with President Trump when he was signing the 2020 ERP (see the photo below).  He clearly indicated to us that his experiences with FDA so far would be helping him remove still more barriers.  (That promise was kept within weeks when Operation WARP Speed launched).  

Citing a pandemic vaccine study finished in September 2019 (sic), page 193 of the 2020 ERP estimated that "the cost of delay in vaccine availability in the case of a pandemic is $41 billion per week."  As White House senior staffer Joseph Grogan put it, the September CEA report was “was part of the intellectual foundation to the modernizing pandemic vaccine production executive order that [the White House] did along with Tony Fauci and NIH.”

[For context versus the current pandemic, note that the 2020 ERP went to the printer in early January 2020 and the writing stopped in early December 2019.  In late March 2020, knowing about the COVID-19 pandemic, I estimated that vaccine delay would cost just the U.S. as much as $136 billion per week].

Look at all of those CEA charts!

(Fox News shows CEA charts from "the brand new economic report from the White House" while the Secretary of Labor provides narrative).

The Economic Impact of Sanders’ Radical Agenda

If fully implemented, but otherwise implemented wisely, Senator Sanders’ agenda for the economy would reduce real GDP and consumption by 24 percent.  Real wages would fall more than 50 percent after taxes.  Employment and hours would fall 16 percent combined.  There would be less total healthcare, less childcare, less energy available to households, and less value added in the university sector.  Although it is more difficult to forecast, the stock market would likely fall more than 50 percent.

Previous analysis of Medicare for All

When I was at CEA, we used an extension of the neoclassical growth model to assess the economic impact of “Medicare for All” (M4A), which we charitably interpreted as 100 percent public financing of the health sector, with (in Chapter 8 of the 2019 ERP) nobody consuming less healthcare and many consuming more than in the baseline.  We also charitably assumed that the public financing would occur with taxes that have minimum efficiency loss per dollar collected.

Arguably the Laffer curve for payroll and consumption taxes is not high enough to finance M4A, but at CEA we charitably assumed that the tax base is inelastic enough to rule out this possibility.  As reported in the 2019 Economic Report of the President, we concluded that payroll tax rates would increase 14 percentage points and tax payments would increase an average of $18,000 per household per year.  Real national income and GDP would fall 9 percent.  Real national income net of taxes and health spending would fall 19 percent.  These result from M4A by itself, and are a best-case scenario.

Considering Sanders’ Agenda More Fully: Factors of Production

My purpose here is to consider Sanders’ agenda more fully, including free public college, free childcare, and a full transformation of the energy sector.  I will also consider the fact, confirmed repeatedly in history, that nationalizing industries will reduce their productivity.  Overall productivity will also decline somewhat as the economy is reregulated (including perhaps a $15 minimum wage and regulating employee-management relations) enough to be put on the pre-2016 regulatory growth path.  A Federal jobs guarantee or a student loan bailout would also not be pretty, but I have not yet quantified it.

I assume that what is currently household spending on public college tuition and on daycare (1.75 percent of aggregate consumption) will become “free” and that these resources will see their utilization increase by the same percentage as healthcare.  Under the assumption that a Sanders administration would provide Federal assistance to nonrich households that are burdened by the high energy prices that come with the Green New Deal, I also expand the Federal budget for that purpose by another two percent of baseline consumption.

Even if without any productivity loss or increased utilization in healthcare, college, and daycare, this means that the Sanders agenda would be expanding the Federal budget by 13.25 percent of baseline consumption.  Including 19 percent additional utilization of these “free” goods and services, tax rates on labor income must increase by 23.5 percentage points (it would be more but the Sanders agenda does expand the tax base by eliminating the exclusion for employer-sponsored health insurance).  GDP falls by 16 percent (this does not yet consider productivity losses -- that comes below).

The simple, correct, but perennially forgotten, idea is that it matters when we spend other people's money on other people.  Nationalizing an industry's revenue is NOT merely a matter of relabeling the dollars that people spend on that industry.  Moving the revenue over to the public purse removes all individual incentive to economize on the amount of spending and to ensure that the spending goes to the highest value activities.  The data matches the theory very well on this.

Considering Sanders’ Agenda More Fully: Productivity

The Sanders agenda puts the economy so close to the top of its Laffer curve that there is no additional revenue to finance the additional inputs into healthcare, college, and daycare that would be needed if those industries suffered any productivity loss.  If their productivity fell by 25 percent, which is optimistic as nationalizations go (see Chapter 8 of the 2019 ERP), then the output of those industries would have to be cut by 25 percent.  To be clear, the result would be less healthcare, less college, and less daycare.

The Sanders agenda will reregulate the economy.  I optimistically (i.e., charitably to the Sanders agenda) project the regulation to be a return to the pre-2016 regulatory trend plus cutting energy productivity in half.  CEA estimated that the pre-2016 trend was to reduce productivity by 0.16 percent per year (see Chapter 3 of the 2020 ERP), which would be 1.3 percent by 2024.  I also assume that a President Sanders would undo President Trump’s deregulatory agenda and his corporate tax cut and thereby reduce productivity by another 3.3 percent.  Taking energy as 3 percent of the economy, the climate change part of the Sanders agenda would (again, optimistically) reduce productivity by 3 percent.  Adding these to the productivity losses in the nationalized industries, that is 10.9 percent less productivity.

Overall, real GDP and consumption would fall 24 percent.  Employment and hours would fall 16 percent combined.  Real wages would fall 11 percent before taxes.  After-tax real wages would fall 51 percent.

This is akin to the Great Depression of the 1930s, except that the Great Depression was eventually followed by a recovery whereas the Sanders agenda (I assume) does not involve eventually putting policies back to the way President Trump had them.  Therefore the stock market would fall at least what it did in 1929, which was almost 50 percent.

Don’t Take Sanders Literally

As an academic exercise, I have taken Sanders literally.  That is not a good forecast of what his policies would be.  If nothing else, his promises are so damaging that the rest of our political system would water them down.  Indeed, Sanders surrogates such as AOC have been saying as much to assure (sic) nervous voters.

None of this denies that Sanders, whose candidacy I have followed for five years, is compelling.  Marxism itself is powerfully irresistible, surviving over a century in the marketplace for ideas.  But it's more than that.  Outside the Washington bubble, there is a demand for disruption rooted in real substance.  Not as much as in 2016, but still there.  People also understandably admire how Sanders' episodes of honesty are so frequent by the standards of conventional politicians.  My favorite example is his 2016 economics white paper, which openly acknowledges the existence of serious people with the opposite view (see especially footnotes 21 and 36), which is exactly the view I express above.


[Appendix on climate effects:

My GDP estimates do not include any climate damage.  M4A is a big part of the Sanders agenda, and has nothing to do with environment.  As shown in Chapter 4 of the 2020 ERP, banning fracking, which is part of the Sanders agenda, makes climate change worse.   To the extent that worse climate means less GDP for the U.S. (climate change is mostly a world GDP effect rather than U.S. GDP?), that would add to the GDP impact I calculated.  On the other hand, other parts of the Sanders agenda might help with climate change.  Also, whaat's above looks at economic impacts in a 5-10 year time frame, whereas effects through climate change will take decades.]

Economic Theory in the White House: An Index of 67 Instances in One Year

It is difficult to exaggerate the usefulness of Chicago Price Theory for economic analysis in the White House.  Below is an index of 67 instances that I can remember where Chicago Price Theory was directly and specifically applied to analysis (usually publicly released) of economic issues over a one year time frame.  As an example of what I mean by "directly and specifically," compare Chicago Price Theory's Figure 19-3 to Figure 7-2 in the 2019 Economic Report of the President.

Figure 19-3 from Chicago Price Theory

From the 2019 Economic Report of the President

(the second derivative of the after-AI demand curve is part of the discussion in both sources).

Economic issue analyzed by CEA	CPT pages
ACA employer mandate	75	-	75
Agency Compliance with Circular A-4	131	-	132
Artificial Intelligence and the labor market	120	-	121
Artificial Intelligence and the labor market	132	-	133
Artificial Intelligence and the labor market	147	-	148
Artificial Intelligence and the labor market	176	-	179
Artificial Intelligence and the labor market	182	-	183
Artificial Intelligence and the labor market	186	-	186
Artificial Intelligence and the labor market	189	-	191
Artificial Intelligence and the labor market	195	-	196
CEA's sample of 20 deregulatory actions	7	-	9
CEA's sample of 20 deregulatory actions	59	-	61
CEA's sample of 20 deregulatory actions	131	-	132
CEA's sample of 20 deregulatory actions	135	-	138
CEA's sample of 20 deregulatory actions	140	-	144
Corporate-income taxation	184	-	185
Corporate-income taxation	185	-	186
Corporate-income taxation	210	-	210
Green New Deal	116	-	119
Green New Deal	131	-	132
Health insurance deregulation	59	-	61
Health insurance deregulation	102	-	103
Health insurance deregulation	131	-	132
Health insurance deregulation	150	-	150
HHS Removal of Safe Harbor for Rebates	66	-	72
HHS Removal of Safe Harbor for Rebates	140	-	144
Highly socialist countries	135	-	138
Highly socialist countries	150	-	150
Macro effects of trade policy	32	-	32
Macro effects of trade policy	176	-	179
Measuring Rx drug prices	48	-	55
Measuring Rx drug prices	55	-	57
Medicare for All	157	-	159
Medicare for All	160	-	161
Medicare for All	168	-	170
Medicare for All	176	-	179
Medicare for All	209	-	209
Opportunity Zones	98	-	99
Pandemic Innovation Values	206	-	206
Telecommunications deregulation	7	-	9
Telecommunications deregulation	79	-	81
Telecommunications deregulation	102	-	103
Telecommunications deregulation	140	-	144
Telecommunications deregulation	150	-	150
The "doubling effect" of switching from reg to dereg	106	-	107
The cumulative impact of regulation (conceptual)	116	-	119
The cumulative impact of regulation (conceptual)	120	-	121
The cumulative impact of regulation (conceptual)	131	-	132
The cumulative impact of regulation (conceptual)	132	-	133
The cumulative impact of regulation (conceptual)	135	-	138
The cumulative impact of regulation (conceptual)	147	-	148
The cumulative impact of regulation (conceptual)	176	-	179
The opioid epidemic	7	-	9
The opioid epidemic	44	-	45
The opioid epidemic	66	-	72
The opioid epidemic	74	-	75
The opioid epidemic	128	-	129
The opioid epidemic	131	-	132
The opioid epidemic	135	-	138
The opioid epidemic	204	-	206
USMCA	96	-	98
Wage growth	48	-	55
[redacted regulatory impact analysis]	48	-	55
[redacted regulatory impact analysis]	157	-	159
[redacted regulatory impact analysis]	186	-	188
[redacted trade deregulation]	131	-	132
[redacted trade deregulation]	135	-	138

I suspect that this is historically unusual.  For example, the neoclassical growth model (standard training in Economics PhD programs and on pages 176-196 of Chicago Price Theory) had never been mentioned in an Economic Report of the President until 2018.  In 2018 and 2019 that model was used to address several policy questions, especially those cited above. 

Comparing Presidents Reagan and Trump: The Case of Regulation

Thanks to a book written in 1986 by former Reagan CEA member William Niskanen, it is easy for an economist from the Trump CEA to rigorously compare economic policies and processes between the two presidents.  On these pages I will compare regulation, trade, tax, spending/deficit, and “draining the swamp.”  I will also look at policy processes and personalities.

The results surprised me and will likely surprise readers too.  The amount of deregulation in health, banking, environment, and employment is far greater during the Trump years than the Reagan years.  Telecommunications were deregulated by both presidents, but probably more so during the Trump years.  Natural gas may be a deregulatory area where President Reagan exceeded.  It terms of aggregate net benefits as a share of national income, it seems clear that changes in the natural gas industry were not enough to outweigh the deregulatory changes in health, employment, etc occurring during the Trump years.

Contrary to today’s conventional wisdom (more on this below), Niskanen in 1986 did not see Ronald Reagan as a major deregulator in practice:

“The failure to achieve a substantial reduction in or reform of federal regulations, building on the considerable momentum established during the Carter administration, was the major missed opportunity of the initial Reagan program.” (Niskanen, p. 115) 

“…all too often the administration ruled against a change in regulation that would benefit consumers at the expense of some concentrated business group.” (Niskanen, p. 137)

Telecommunications and Transportation

Specifically, Niskanen (pp. 119-20) cites a mixed record by the Reagan Federal Communications Commission (FCC) in terms of promoting competition in telecommunications.  In contrast, President Trump’s FCC removed anticompetitive vertical price controls from the wired and wireless internet service industries with its “Restoring Internet Freedom” rule.  President Trump and the 115^th Congress also sharply reduced internet service prices by nullifying an Obama-era FCC regulation on the types of internet service products that could be sold to consumers.  CEA estimated that these two actions alone have net benefits of more than $50 billion per year (about 0.3 percent of national income).

By historical standards, 0.3 percent of national income is a lot for the net benefit of deregulatory actions for just one industry.  There are some historical industry deregulations that may be about that magnitude, such as the deregulation of airlines, trucking, railroads, or petroleum circa 1980.  These changes are sometimes associated with President Reagan, but as Niskanen accurately notes most of this deregulation occurred due to laws passed by Congress and signed by President Carter.

(Reagan's EO 12887 did, with some fanfare as his first EO, accelerate by 8 months the petroleum price regulations that would have automatically expired pursuant to the 1975 Energy and Conservation Act.  See also p. 102 of the 1983 ERP or p. 166 of the 1986 ERP.  Reagan's FAA also created a market in landing slots at the four largest airports; see 50 FR 52180 or pp. 178-9 of the 1986 ERP or pp. 218-20 of the 1988 ERP). Although little noticed at the time, the Bus Regulatory Reform Act of 1982 should also be credited to the Reagan Administration).

Natural gas

Before the 1980s, the natural gas industry was heavily regulated both at the wellhead and along the pipelines.  The 1978 Natural Gas Policy Act “provided for the phased deregulation of most gas discovered after 1977 but maintained price controls on ‘old’ gas.” (p. 121)  That is, partial deregulation at the wellhead occurred during the Reagan years, but only as the result of a law signed by President Carter.  President Reagan’s Federal Energy Regulatory Commission (FERC) did meaningfully add to this deregulation. Niskanen wished that deregulatory legislation had also been passed during the Reagan years, and it eventually was during the first year of the Bush Administration (the Natural Gas Wellhead Decontrol Act of 1989).  Led by Reagan- and Bush-appointed commissioners, FERC removed most remaining vertical price controls in 1992.  All of these actions together created net benefits estimated to be about 0.2 percent of national income.

Health

President Trump and the 115^th Congress deregulated health insurance, especially by eliminating (technically, “setting to zero the penalty established by”) the individual mandate and removing Obama-era restrictions on: the sales of short-term plans, the pooling of plans among small employers, and the use of employer benefit dollars for individual-market plans.  As I wrote earlier, President Obama’s individual mandate was epically inefficient because it penalized people for turning down large amounts of government assistance.  These health insurance deregulations have net benefits estimated to be about $50 billion per year.

An Obama Administration rule prohibited insurers from offering a Medicare plan that failed to be "meaningfully different" from other plans.  This was a not-so-subtle tactic to limit competition among insurers; President Obama's Centers for Medicare and Medicaid Services (CMS) even bragged that the health insurance industry was in favor of this rule.  President Trump's CMS eliminated this requirement.

I am not aware of any significant health-insurance deregulation by President Reagan; none are mentioned by Niskanen.

Under both Presidents Reagan and Trump, the Food and Drug Administration (FDA) removed barriers to entry into prescription-drug markets.  According to Niskanen, the Reagan-era changes related to the entry of new drugs.  He does not provide any statistics (although see p. 218 of the 1989 ERP), but during the Reagan years there was no reduction in the inflation-adjusted price of prescription drugs as measured by the Consumer Price Indexes (this absence of a drop may reflect the “new goods problem” with the CPI).  President Trump’s FDA also eased entry for generic drugs, and a significant drop in prescription-drug prices followed, indicating net benefits of about 0.15 percent of national income.

Additional deregulation at the FDA occurred when the 115th Congress passed, and President Trump signed, the Right to Try Act allowing experimental therapies to be sold to terminally ill patients before the FDA has approved them.  Note that previously the FDA had other pre-approval processes in place that put more liability on manufacturers and involved more FDA and IRB involvement and, interesting, got additional attention from the Reagan Administration.

A recent Executive Order sets to relax price controls in the market for kidney donations.  Even the Washington Post applauded this partial deregulation.

The Obama Administration erected significant barriers to entry of new safer cigarette ("nicotine delivery") products.  The Trump Administration acknowledged the importance of product innovation and relaxed the Obama restrictions somewhat, although the British example suggests that there may be room for more beneficial deregulation.

Perhaps out of character with the overall deregulatory agenda (see also the principles articulated in the Administration's Choice and Competition Report), two significant new and costly regulations were proposed since 2017.  Over the objections of Administration economists, these proposed economic regulations were authored by the Department of Health and Human Services (HHS).  One of these was the "rebate rule" (a complicated system of vertical price controls), which the HHS actuary estimated would, among other things, transfer tens of billions from taxpayers (and most senior citizens) to pharmaceutical manufacturers.  President Trump ultimately told the HHS Secretary to withdraw this rule or receive an embarrassing return letter from the Office of Information and Regulatory Affairs (OIRA).  Another economic regulation from HHS further mandated the content of pharmaceutical advertising but has been struck down by a Federal judge pending a decision by HHS/DOJ to appeal.

Environmental

Neil Gorsuch’s mother led President Reagan’s Environmental Protection Agency (EPA), and Niskanen describes that she was “completely dependent on [a] staff” that she distrusted and that “EPA technocrats won the day.” (pp. 126-7).  He does give the EPA credit for “strengthen[ing] the emissions trading program on existing stationary sources of air pollution.” (p. 127)

President Reagan’s staff attempted to significantly reduce fuel economy standards for cars and light trucks, but only succeeded in reducing them by 1.5 MPG per vehicle (p. 122).

In contrast, President Trump’s Department of Transportation (DOT) and EPA have proposed to reduce fuel economy standards (which now are closely related to limits on Green House Gas emissions) by almost 13 MPG per vehicle below what they would be with Obama-era rules.  When this rule is finalized (press rumors say that the final rule is coming soon), I will provide a simple and obvious demonstration of why reducing the standards has especially large net benefits (including environmental costs).

(The Reagan Administration's DOT did attempt to reverse a Carter-era requirement that automobiles have passive safety restraints, but was reversed by the courts; this regulation was later updated as a requirement for driver-side airbags).

(Although not a deregulation, a worthwhile 1985 environmental rule by President Reagan’s EPA prohibited the sale of gasoline with lead content as high as had prevailed previously.)

Banking

Earlier versions of the Federal Reserve’s “Regulation Q” prohibited banks to pay interest to many of their depositors.  This price control was largely relaxed by a law passed before Reagan was inaugurated, although the Reagan Administration help extend the deregulation to saving banks.  “The [Reagan] Administration was less successful in changing other types of bank regulation.” (Niskanen p. 123)

In contrast, the “2018 Economic Growth, Regulatory Relief, and Consumer Protection Act… removes the restrictions from smaller banks that were misapplied to them as part of prior efforts to alleviate the ‘too big to fail’ banking problem. The CEA posits that this act ‘recognizes the vital importance of small and midsized banks, as well as the high costs and negligible benefits of subjecting them to regulatory requirements better suited for the largest financial institutions. [It] is expected to reduce regulatory burdens and help to expand the credit made available to small businesses….’” (CEA p. 14)

President Trump and the 115^th Congress also nullified Obama-era (and trial-lawyer approved) rules prohibiting arbitration agreements in financial contracts.  His administration stopped the Consumer Financial Protection Bureau’s (CFPB) rule “to largely eliminate the payday lending industry…. The CFPB expected that its rule would reduce activity in the payday loan industry by 91 percent, even while acknowledging that consumers found the loans helpful for paying ‘rent, childcare, food, vacation, school supplies, car payments, power/utility bills, cell phone bills, credit card bills, groceries, medical bills, insurance premiums, student educational costs, daily living costs,’ and other pressing expenses.” (82 FR 54515 as quoted by CEA p. 15).

Page 121 of the 1983 ERP briefly notes deregulatory activity by the Commodity Futures Trading Commission under the Reagan Administration.

Employment

The only Reagan-era employment deregulations mentioned by Niskanen relate to regulations implementing statutory prevailing wage requirements for Federal contractors. (p. 124)

In contrast, the Trump Administration has removed or is removing (sometimes with the assistance of rulings by Federal judges) a number of costly employment regulations from the Obama years.  Perhaps the most costly of these is the Federal rule, ultimately nullified by President Trump and the 115^th Congress, giving states permission to mandate employers to provide state-administered retirement accounts.

Other Obama-era rules imposed large costs on employers and employees for the stated purpose of providing labor unions a small advantage in recruiting members from new industries.  As a university professor, I was particularly bothered by the Obama National Labor Relations Board’s (NLRB) assertion that university graduate students are employees of their university rather than customers, and thereby should have the terms of the university-student relationship set by labor unions.  With President Trump’s appointments to the NLRB, this approach was stopped at the University of Chicago literally days before it was to go into effect.

CEA estimates that employment deregulations by the Trump Administration have net benefits of more than $40 billion per year.

Process changes

President Reagan’s Executive Order 12291 required Federal agencies to use cost-benefit analysis to evaluate major rules.  It also helped the OIRA get more involved with regulatory approval.  The results above suggest that EO 12291 did not cause much deregulation (a fact ignored here), although one could argue that it constrained new regulations during the Reagan Administration and beyond.  There is something to the argument, but it should be noted that President Clinton weakened the Reagan order with his EO 12866 by requiring only that a rule’s benefits “justify” the costs.  In practice this means that benefits are typically described in purely qualitative terms, which (together with other process maneuvers) allowed President Obama and others to implement rules where costs greatly exceed benefits.

President Trump’s Executive Order 13771 established a budget for regulations, including budget constraints for each agency.  A lot of deregulatory activity followed EO 13771 (many cited above), but that connection cannot be entirely causal.  For example, independent agencies are not covered by EO 13771 but nonetheless FCC, CFPB, and others meaningfully deregulated (unless they were solely motivated by the threat of coming under an update of EO 13771?).  Another question is whether EO 13771 will last as long as EO 12866; one perspective is that budgeting aligns so well with common sense and is familiar enough to Congress that Congress will one day take over regulatory budgeting so that future presidents have little choice in the matter.

Other commentators on Reagan vs Trump deregulation

Using different methods from above, Patrick McLaughlin and former OIRA administrator Susan Dudley also concluded that President Trump’s deregulation is extraordinary even when using President Reagan as a benchmark (see also here).  Dudley’s chart, reproduced below, shows how President Trump’s “executive agencies completed 33 final economically-significant regulations, in contrast to 89 during the same period in the Obama administration and 63 in the Reagan administration.”

Final Economically-Significant Regulations - First 18 Months in Office

Without citing specific regulations from the Trump era, the usual suspects dismiss claims that deregulation since 2017 has been quantitatively important compared to what happened during the Reagan years.  The New York Times’ “Fact Check,” for example, cites elimination of unnamed “economic regulations in the transportation, telecommunications and energy industries” during the Reagan Administration without acknowledging what has happened in those industries since 2017, let alone what recently happened in the health insurance and banking industries, or what has happened with employment regulation recently.  Others limit the Reagan-Trump comparison to environmental regulations, without any quantitative discussion of vehicle fuel economy and emissions standards.  Others cite Reagan as the big deregulator because of the novel deregulatory ideas that were discussed, albeit never implemented.

Others acknowledge the differences between President’s Trump and Reagan, and attempt to explain them.  Professor Marissa Golden points out that Reagan had a divided Congress whereas President Trump began his term with Republican majorities in both houses.  Indeed, significant deregulation came about when the 115^th Congress and the Trump Administration used the Congressional Review Act to nullify several Obama-era rules.

To that I add that President Trump happened to follow a prolific regulator (Obama), which made it comparatively easy to find costly regulations for elimination.  In contrast, President Reagan followed Carter who had already charted the elimination of some of the most costly regulations of his time.

[trade, tax, spending/deficit, and “draining the swamp” are coming later.   The Reagan-Trump comparison on trade policy is particularly surprising.]