Presidents have surprisingly little influence over the economy—except in a single, vital respect: their agencies that issue regulations.
Late last month, the Federal Trade Commission issued what’s called a final rule—a new regulation—banning noncompete clauses in contracts for nearly all American workers. Once the rule goes into effect, it will have a dramatic impact on the U.S. labor market. Workers will have an easier time starting new companies and bringing new products to market. And businesses that want to keep their employees from leaving to work for a competitor will likely have to pay them more; the FTC estimates that the ban could increase earnings for workers by more than $500 a year on average.
The rule change is a good one. It’ll give workers more power when dealing with employers, and it’ll make labor markets more efficient. And it happened for one reason only: Joe Biden won the 2020 election and then appointed people friendly to workers’ rights to the FTC’s board. Presidents typically get blamed for economic problems that, in reality, they can do little about, and they get credit for economic successes that they had little to do with. But in the case of the noncompete rule, Biden really does deserve credit.
That illustrates a rather neglected fact of American politics: The character of the presidential administration that gets to run the regulatory agencies of government can have a tremendous effect on economic policy and on Americans’ everyday lives.
The new noncompete ban was far from the only consequential recent regulation created recently by a federal agency. In just the past couple of months, the EPA has handed down new tailpipe-emission standards for cars, to be phased in from 2027 to 2032, which should accelerate the transition to hybrid and electric vehicles. The Department of Transportation issued a set of new rules requiring airlines to disclose various add-on fees up front, and to give passengers automatic cash refunds when flights are canceled or checked bags are significantly delayed. (The department estimates that its rules could save consumers up to half a billion dollars a year.) And the Department of Justice filed an antitrust lawsuit against Apple, arguing that the technology company quashed competition from other app makers in order to keep customers tied to its iPhones.
Conor Friedersdorf: The regulatory state is failing us
The far-reaching power of regulatory agencies should, in some sense, be obvious; after all, we live in the age of what is sometimes called “the administrative presidency.” And right-wing pundits such as Steve Bannon have long called for the “deconstruction of the administrative state.” Nonetheless, when most voters think about the differences in economic policy between Donald Trump and Joe Biden, they’re much more likely to think about differences in attitudes toward tax cuts and spending programs, and perhaps whether or not a candidate is likely to preserve Social Security and Medicare or push for entitlement cuts, than about who a candidate is going to appoint to an agency like the FTC or the National Labor Relations Board. And although tax policy and spending programs are of course very important, some of the most potent levers that presidents can pull to shape the economy these days are administrative and regulatory ones.
This isn’t because of any sinister, “deep state” scheming on the part of the White House. It’s a function of the fact that the many of the laws administrative agencies have to implement and enforce are broadly phrased, which necessarily gives agencies a great deal of latitude in how to enforce them.
The FTC, for example, is primarily responsible for ensuring compliance with the Federal Trade Commission Act and the Clayton Act. The first law prohibits “unfair methods of competition” by businesses, as well as “unfair or deceptive acts or practices.” That means the FTC has to decide whether a trade practice—say, fees that are disclosed only at the point of purchase—is unfair or deceptive, as well as whether the harm from that practice merits bringing a lawsuit or issuing a new rule. The Clayton Act, for its part, prohibits any corporate merger or acquisition when the effect of the deal “may be to substantially lessen competition.” That allows the agency enormous discretion—either to look the other way, except in egregious cases, or to intervene aggressively to block corporate mergers.
Similarly, the NLRB is officially tasked with enforcing the National Labor Relations Act, ensuring that workers are free to unionize without undue interference by employers, and that unionization elections are free and fair. That gives the board a lot of latitude to decide what kind of employer activities count as undue interference with unionization efforts, and what makes for a free and fair election.
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Last fall, for instance, the NLRB held that if a majority of workers at a company sign cards certifying that they would like to be represented by a union, the company has to recognize and bargain with the union or call an election within two weeks. And if the company commits any unfair labor practice during the run-up to that election, the NLRB will order the employer immediately to recognize the union and bargain with it. That gives employers a strong incentive to not campaign aggressively against unionization, making it easier for workers to organize.
The courts, to be sure, have a role in this process, because they can overturn agency rules, and they issue judgments on the lawsuits brought by the government. But agencies inevitably have a great deal of discretion in our system. And adopting a light enforcement regime is as much of a choice as adopting a tougher one. Either way, the agencies shape the way the economy works.
Some of the choices that agencies make are bipartisan: The Justice Department, for instance, is wrapping up an antitrust lawsuit against Google that was originally filed during the Trump administration. But many agency decisions inevitably reflect political values. So the question of who runs these agencies, or sits on these commissions, has profound implications for the decisions they reach.
Under the Biden administration, for instance, the NLRB has been far more congenial to unionization efforts than it was under Trump. That is partly because Biden has named experienced labor advocates to key positions, whereas Trump was more likely to name corporate lawyers. Similarly, the FTC’s new noncompete rule passed by a 3–2 party-line vote, with the three Democratic appointees on the commission voting for it and the two Republican appointees voting against it. If Trump had won in 2020, noncompete agreements would almost certainly still be legal.
James Surowiecki: Why Biden’s pro-worker stance isn’t working
None of this means that new rule-making is a good thing per se, or that every antitrust lawsuit that the FTC and the Justice Department bring makes good policy sense. What it does mean is that evaluating the impact a president has had on the economy is impossible without paying attention to what administrative agencies have done. The NLRB seems unlikely to get mentioned much in the lead-up to November’s election. But if you want to know what the Biden administration has done for workers and consumers, you have to look at what the NLRB and the FTC (and the DOT, and the EPA, and so on) have accomplished during his presidency, just as much as you would credit him with the 2021 stimulus program and the Inflation Reduction Act. The same is true of Trump: If you want to know what he’ll do for the economy should he be reelected, you have to look at what those agencies did while he was in office.
If November’s election ushers in a change of administration next year, perhaps the most economically significant difference will be who gets to pull the levers of the regulatory state. In recognition of this fact, the White House is rushing to “Trump-proof” President Biden’s agenda in an effort to preserve some of the regulatory changes of the past few years. But if Trump wins, he’ll undoubtedly reverse most of them. As they say, elections have consequences.
Support for this project was provided by the William and Flora Hewlett Foundation.
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