Rewriting the Rules: The Evolution of Economic Regulation in Modern America

Hi Everyone. In this blog post, we discuss the effects of government regulation on the economy in the 21st century. This will serve as a historical analysis and overview of the issue.

Regulation in the 2000s

At the start of the 2000s, following the precedent set in the 1990s, the government largely left markets to their own devices, with minimal regulation and oversight. Financial markets expanded significantly, with the legacy of the Gramm-Leach-Bliley Act of 1999 overshadowing the economy, resulting in the dismantling of parts of the Glass-Steagall Act (New Deal-era government regulation of the economy), which allowed the consolidation of investment banks, commercial banks, and insurance firms into conglomerates. This led to a sharp decrease in government power over the economy and to excellent profitability for financial firms, but also to volatility in markets without government oversight and checks. Another crucial piece of legislation from this period was the Commodity Futures Modernization Act of 2000, which exempted derivatives (options, futures, swaps, etc.) from government regulation. This led to significant market activity, as many investors took on risky options positions, setting the market up for a crisis.

Additionally, with the decline in government regulation, globalization expanded with China's entry into the World Trade Organization, reshaping global supply chains that were no longer defined by government oversight. All of these measures accelerated market growth in a manner that could not be sustained, resulting in disasters such as the Enron scandal, the Dot-Com Bubble, and the 2008 Financial Crisis (for more details on market bubbles, see my post on the topic). This crisis, especially the 2008 crisis, became a defining characteristic of the 2000s and heavily influenced policy thereafter.

Regulation in the 2010s

After the Dot-Com Bubble and the 2008 Financial Crisis, the Federal government took many New Deal-type steps to regulate and oversee economic activity and transactions. Legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau to monitor and test the strength of major banks and financial institutions (stress tests). The CFPB also mandated higher capital (cash) requirements for banks to reduce the risk of bank runs. This was, in fact, the largest set of government measures to regulate the economy since the New Deal, and it led to increased financial stability. Another form of government regulation was the Affordable Care Act, enacted under President Obama, which greatly expanded health insurance coverage and imposed numerous regulations on health insurers. This increased Federal spending on the healthcare system and, through employee benefits, reshaped the labor market, contributing to greater economic stability rather than growth. Finally, the FCC Net Neutrality Order of 2015, which prevented broadband providers from blocking access to the internet for individuals, led to significant individual freedom for consumers of technology and greatly limited the power of telecommunications companies under the watchful eye of the Federal government. Overall, this decade was shaped by efforts to stabilize the economy after the financial crisis of the 2000s, 

2020s Regulation

In the 2020s, the government has moved toward a mix of strategic intervention under the Biden administration and deregulatory trends under Trump. Under the Biden administration, major initiatives such as the Inflation Reduction Act and the CHIPS and Science Act leveraged federal investment to steer the economy toward clean energy, industrial, and semiconductor technologies. This likely led to a heightened inflationary trend, driven by weak economic growth and excessive regulation, though it provided financial security to some. Under Trump, a deregulatory approach is being pursued through initiatives such as the creation of DOGE and restrictions on the powers of the SEC and the aforementioned CFPB, intended to promote economic growth and counter the Biden-era regulatory actions. Even though initiatives such as DOGE were short-lived, economic effects such as a significant gain in the stock market and a growth in US foreign investment are a greatly positive effect for the economy.

In conclusion, the US government's regulation of the economy has evolved over the years and will continue to do so in the future. See you in February!