By
Derek Hamilton
July 16, 2024
As we approach US elections in November, we believe it is prudent for investors to consider the implications of various policy proposals from the different candidates. A few months ago, we wrote about important differences between the two candidates. Today, we are digging deeper into a specific area of policy important to markets: regulation.
The regulatory environment can have a big impact on business activity, profitability, and economic growth. Regulation on US businesses is one of the few policy levers presidents can use in many cases that does not need approval from congress. When congress passes legislation, it usually delegates rulemaking authority to the federal government, and then different agencies enact specific rules and regulations falling under those laws. Of course, the president oversees the federal agencies responsible for rulemaking authority, which means the president is the final decisionmaker when it comes to the size of regulatory burden to be enacted.
The chart below shows the number of rules in the Federal Register, which gives us an indication of the regulatory burden on companies and the economy. Specifically, the chart looks at “economically significant” rules, which are regulations that have a material impact on the economy. While the definition and reporting requirements for these rules were recently changed by the Biden administration, the current administration has imposed more “economically significant” regulations than other administrations.
To be clear, we are not making the argument that all regulation is bad. Regulation is necessary for bringing clarity to laws that generally benefit the livelihood of Americans. However, we believe excessive regulation can be detrimental to specific companies, sectors, and the broader economy. We think the winner of the upcoming presidential election could have a meaningful impact in this area over the coming years.
Cumulative economically significant rules
(from inauguration through May of fourth year)
Sources: Macquarie, Office of the Federal Register, The George Washington University Regulatory Studies Center.
Note: Starting April 6, 2023, the data incorporates the new definition in Executive Order 14094, which changed the definition of "significant rules" to be less stringent.
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