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Stupid Money: What Does Deregulation Mean for Me?

A lot! Even if you don’t own any stocks.

Deregulation: We hear about it all the time from both sides of the political spectrum. And to hear each side’s opinion of it, fewer laws regulating companies and industries is either the best or the worst thing ever. It’ll take the shackles off the economy, and we’ll all get rich, live long and prosper! No, wait: It’ll get Wall Street and CEOs rich, devastate the environment and leave the rest of us in the gutter!

Since those are completely opposite scenarios, what the hell does deregulation actually result in? Alongside Stephen B. Nielander, CFA, adjunct faculty at San Diego State University’s Fowler College of Business, who’s also a partner at HPM Partners, a wealth management firm in Southern California, we tried to figure out the answers.

If I don’t play the stock market, does deregulation do anything for me?

It’s an interesting question, because deregulation usually increases stock price in the short term in whatever industry is being deregulated, which directly benefits shareholders. But Nielander points out that even if you’re not Warren Buffett, you — and certainly millions of others — might have retirement plans tied up in the stock market, whether they’re pensions, 401Ks or IRAs. A healthier stock market benefits lots of people. But beyond the stock market, loosening the rules of any business or industry has all sorts of knock-on effects.

Such as…

Well, regulations are usually seen as bearing some sort of cost. Take banks (please!) for example. In the late 2000s, after the banking industry drove the world economy full-throttle off a cliff in a shiny red sports car, playing air guitar while blasting “Rock You Like a Hurricane,” the government tightened up their game with sweeping laws. The idea of Dodd-Frank and the Housing and Economic Recovery Act of 2008 was to keep Wall Street and the banks from being so damn stupid, handing out loans like Oprah does cars. The result? Armies of regulators at the biggest banks.

“At most major banks, like Bank of America or JP Morgan, there are hundreds of regulators camped in their headquarters,” Nielander says. “That takes a massive amount of senior management’s time to get reports to these people and the flow of information that they need.”

Guess who the banks pass on the costs of this to? (Answer: Go look in the mirror.) Maybe they add on service charges for regular checking accounts, or raise interest rates on car loans. Other rules forced upon banks have prevented them from running as efficiently as possible, Nielander says, and overall, he’s generally inclined to believe that government tends to overregulate. Likewise with any business (e.g., a fast food chain) that’s expanding and needs to wait years for a litany of regulatory approvals to build their building and operate their business: Lost time is lost money, and that, Nielander says, gets passed on to the consumer.

So deregulation is… good?

Not always! Let’s talk about the environment. Lots of regulations exist to prevent our planet from becoming a toxic, uninhabitable hellhole. Of course, if you either don’t believe in climate change — or you just cynically call it a hoax so you can make a few more dollars skirting regulations, rather than dealing with environmental catastrophe (aka Trump’s environmental stance) — you probably see regulations as a costly burden. But just as aviation regulations are written in blood (as the saying goes), environmental regulations are usually crafted in response to health scares and massive pollution spills. So are they good? It really depends on what you value.

On the other hand, Nielander thinks environmentalists get too alarmist, considering that oil remains a large part of our economy. Does it make better sense to move oil through a controversial pipeline, he posits, or by railcars that ride through cities and towns, and which, on rare occasions, can be deadly and disastrous, not to mention more costly? Likewise, with gasoline taxes that go toward environmental or some other sort of regulation: Gas taxes are an example of a regressive tax — and uniform taxes like these disproportionately affect poor people. Is that a good thing?

Nielander remembers, however, growing up in Southern California in the 1960s and 1970s, when P.E would be canceled some days because the air was literally unsafe to breathe! So what did the government do? The sensible thing: promote catalytic converters in cars, and champion air-quality laws. It’s all a balance.

Speaking of balance, what’s the ideal one here?

It’s tough. Nielander says the government never seems to be able to keep things at 65 miles per hour: It’s either flooring it with zero regulations, or slamming on the brakes with too many regulations. It seems that since deregulation runs sharply along ideological lines, and ideological lines are farther apart than ever, deregulation is often an exercise in seesawing, and who’s up at the moment depends on which party is in power.

The other thing is that regulation is also largely reactive. Nobody likes or fully appreciates regulations when they’re not needed, so in the good times, the spirit of deregulation reigns, while in times of crisis, regulation is often treated as essential medicine. It’s tough to strike a balance, with so many variables, interests and ideologies.

Beyond stocks and things like public safety, what’s the upside for average guys like me?

In theory at least, overregulation can slow down an economy. So for example, the slow recovery following the recession was in part due to the reluctance or inability to start or expand businesses because they were unable to secure a business loan. This means people with jobs are reluctant or unable to get a new, better job — and when employees aren’t in demand, wage increase is flat. But when employees feel comfortable leaving their jobs or finding new jobs, employers tend to lure them away by offering more money and/or benefits — and then a new spot opens up at the employee’s old company, and so on.

When do regulations go wrong?

Where there’s a rule, there’s often an unintended consequence. Nielander points to Obamacare, which mandated that 40-hour-a-week employees be required to receive healthcare. What did employers do? They simply cut hours! Likewise with minimum wage increases: Nielander says McDonald’s will either raise the price of burgers or just buy some robots instead. Or take offshoring of jobs, which is a handy way for companies to skirt minimum wage requirements, employment laws or environmental laws (most laws, in fact).

So… we’re always going to be either over- or under-regulating, helplessly stuck between the two?

Yep. We live in a two-party system: Get used to it.