Since assuming office, President Biden has made combatting Covid-19 and bolstering the US economy the immediate priorities for his administration. Behind the scenes, however, are looming regulatory changes that could unwind much of the deregulation that occurred in the Trump era. Three areas -- the environment, healthcare and Big Tech – are likely to be among the most affected.
At the outset, it should be acknowledged that the impact of regulations on the overall economy is inherently difficult to quantify. One reason is federal agencies are only required to conduct cost-benefit analyses on rules deemed "economically significant". They are defined as having an annual effect on the economy of at least $100 million (£72 million).
President Trump began his tenure with an executive order that called for agencies to cut two regulations for every new regulation. The Trump administration also reinterpreted existing statutes to be more favourable to business, and his pro-business stance is credited with assisting many small and medium size businesses.
By comparison, one of Joe Biden’s top priorities is to combat climate change. To do so, he plans to reverse 100 of the Trump administration’s rollbacks of Obama-era policies relating to the environment and public health. Biden’s stated actions include re-joining the Paris Climate Accord, raising fuel economy and emissions standards with goal of net zero emissions by 2050, and withdrawing Trump’s five-year plan on offshore drilling.
Biden’s plan calls for outlays totalling $1.6 trillion over 10 years to build out green infrastructure and increase R&D in alternatives. This tally does not include the cost of added regulations, which are estimated to have been more than $100 billion annually during the Obama years. Meanwhile, investors will be assessing the implications for energy companies: Their ability to generate satisfactory returns will hinge on how well they transition away from fossil fuels over time.
While there are major differences between Trump’s and Biden’s approaches to the environment, neither embraces market-based solutions to climate change Biden’s plan, for example, does not include cap and trade that has been used successfully to deal with the problem of acid rain. Nor does it include a tax on carbon emissions.
Biden’s preferred solution is to mandate restrictions on the use of fossil fuels and to develop alternatives to them. From an overall perspective, however, mandated restrictions on carbon emissions may be more costly and less efficient than utilising incentives.
Another area that could be impacted by regulatory changes is the pharmaceutical industry. In this case, both Democrats and Republicans alike have been seeking to lower drug prices but with limited success thus far.
One of the challenges in regulating drug prices is there is a big difference between list prices set by drug companies and actual costs that patients pay out of their insurance plan. Because pharmaceutical companies are likely to balk at changes in list prices, the most likely solution is to provide larger Medicare drug benefits, so patients pay less when they fill a prescription.
A bi-partisan bill introduced by Sens. Chuck Grassley (R-IA) and Ron Wyden (D-OR) could serve as a template for drug pricing legislation. The bill would penalise drug companies for any price increases that exceed inflation and require them to pay rebates to the Medicare program. President Biden ultimately will have to decide how much to prioritise drug pricing alongside other goals that include improving Obamacare and reversing some of the Trump administration’s actions on Medicaid.
Meanwhile, one factor that may have lessened the likelihood of major legislative changes is the rapid development of Covid-19 vaccines. The reason: They have cast pharmaceutical companies in a more favourable light with the public at large.
By comparison, the spotlight has shifted to Big Tech companies for a variety of reasons. First, they have benefited enormously from the Covid-19 pandemic, as businesses and households have increasingly transacted digitally due to shutdowns and social distancing.
The technology sector in the US today represents 6% of GDP and 2% of employment. Yet, a handful of tech firms account for more than 22% of the market capitalisation of S&P 500 index, and they far outperformed other companies during the pandemic. This has resulted in Big Tech attracting increased public scrutiny.
In early October, the Democrat-led House issued a report based on 16 months of investigations looking at allegations of anti-competitive behaviour among four leading tech companies – Amazon, Apple, Facebook and Google. This was followed by the Justice Department advancing an antitrust lawsuit against Google in October while the Federal Trade Commission charged Facebook with anti-competitive behaviour in December. More recently, press reports indicate President Biden is considering appointing an anti-trust tzar.
Dipayan Ghosh of the Harvard Kennedy School views the bipartisan support for greater regulation as arising from a shift in public sentiment against the largest tech companies. Gosh foresees Congress and the White House focusing on reforming certain business practices aimed at: (i) protecting consumer privacy; (ii) requiring algorithmic transparency; (iii) limiting potential for anti-competitive conduct; and (iv) holding tech firms liable when they facilitate (or fail to moderate) harmful content.
Public support has increased in recent weeks due to the assault on Congress on January 6. Many observers believe social media companies contributed to the problem by serving as conduits for disinformation about the presidential election.
It is unclear at this time how aggressive the Biden administration will be in reining in Big Tech companies. An article in Foreignpolicy.com by Vivek and Tarun Wadwha argues that even though Silicon Valley helped bankroll Joe Biden’s campaign, “the mood and context have changed utterly, and the traditional cosy relationship between the Democratic Party and Big Tech is on the brink of turning much more contentious".
Still, others maintain Biden has been friendly to Big Tech in the past, and that he was relatively quiet about the technology industry throughout the presidential campaign.
My own view is Biden is likely to take a centrist stance on the issue. The challenge for his administration will be to update the current regulatory system relating to technology while avoiding policies that could worsen the problem. Doing so will require balancing the need to support the digital revolution in a way that upholds democratic principles. The outcome, in turn, has important implications for the US stock market given the prominence of the leading tech companies.
Nicholas Sargen is an Economic Consultant and is affiliated with the University of Virginia’s Darden School of Business. He has authored three books including Investing in the Trump Era: How Economic Policies Impact Financial Markets.
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