— Ch. 1 · Defining Regulatory Frameworks —
Regulatory economics.
~7 min read · Ch. 1 of 5
In 1946, the U.S. Congress enacted the Administrative Procedure Act to formalize how government agencies create and enforce rules. This law established uniform procedures for federal agencies when they promulgate regulations or adjudicate claims against them. It also set forth the process for judicial review of agency actions. Regulation generally means legislation imposed by a government on individuals and private sector firms to modify economic behaviors. Conflict often arises between public services and commercial procedures that maximize profit. The interests of people using these services can clash with those not directly involved in transactions. These conflicts are known as externalities. Most governments maintain some form of control to manage such possible conflicts. The ideal goal is to ensure safe service delivery without discouraging business development. For example, regulation controls the sale of alcohol and prescription drugs in most countries. It also governs food businesses, residential care, public transport, construction, film, and television. Monopolies, especially natural ones difficult to abolish, receive heavy oversight. The financial sector remains highly regulated across nations. Regulation includes public statutes, standards, or statements of expectations. A registration or licensing process approves and permits operations by named organizations or persons. An inspection process ensures standard compliance through reporting and management of non-compliance. Price controls take forms like price-cap regulation or rate-of-return regulation for natural monopolies. Non-compliance results in financial penalties or de-licensing orders. Some industries adopt self-regulating models voluntarily. Internal measures work toward mutual benefit among members. Voluntary self-regulation maintains professionalism and ethics within an industry. When a broker purchases a seat on the New York Stock Exchange, explicit rules of conduct apply. Coercive regulations from the U.S. Securities and Exchange Commission impose constraints regardless of individual consent. In a democracy, collective agreement exists through representatives who impose these agreements.
Historical Waves Of Control
Throughout the 18th century, British government ministries regulated production and distribution of goods in American Colonies under mercantilism. Subsidies were granted to agriculture while tariffs were imposed without colonial representation. This lack of representation sparked the American Revolution. The United States maintained high tariffs into the 20th century until the Reciprocal Tariff Act passed in 1934 under Franklin D. Roosevelt. Regulation and deregulation arrived in waves throughout American history. Big business deregulation during the Gilded Age led to President Theodore Roosevelt's trust busting campaign from 1901 to 1909. Laissez-Faire economics returned during the roaring 1920s before the Great Depression struck. Intense governmental regulation and Keynesian economics followed under Franklin Roosevelt's New Deal plan. President Ronald Reagan deregulated business in the 1980s with his Reaganomics plan. Jimmy Carter introduced sweeping financial system deregulation between 1977 and 1981 by removing interest rate ceilings. He also reformed transportation industry regulations allowing airlines more freedom. Ronald Reagan expanded deregulation during his two terms from 1981 to 1989 through income tax cuts and reduced government spending. Many economists believe Reagan-era policies contributed to the Savings and Loan Crisis of the late 1980s and 1990s. Overly complicated regulatory law and inflation concerns made deregulation appealing in the late 1970s. In 2017, Donald Trump signed an executive order claiming he would remove two regulations for every new one. He stated that every regulation should pass a test asking if it makes life better or safer for workers or consumers.