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THE SUPREME COURT’S WAR ON REGULATION IS GOING TO TANK THE ECONOMY
 
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Timothy Noah
July 3, 2024
The New Republic
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_ The right-wing justices declared open season on regulations that
don’t just protect the environment, health, and safety, but the
economy too. _

, CELAL GUNES/ANADOLU/GETTY IMAGES

 

On Tuesday the Occupational Safety and Health Administration issued
a long-overdue draft standard
[[link removed]] protecting indoor and
outdoor workers from exposure to excessive heat. Forty workers on
average die every year from heat exposure. The proposed rule
(click here
[[link removed]] to
read the text) requires certain employers to provide workers with
15-minute rest breaks every two hours, to provide drinking water, and
to take other commonsense measures.

“It will definitely be challenged” in court if there’s a second
Biden administration, Jordan Barab, former deputy assistant labor
secretary for OSHA, told me. (If Trump wins, he’ll probably kill the
heat standard before it’s issued in final form.) Barab can be
certain of that because “every OSHA standard for the past 50 years
has been challenged by business interests.” The heat standard
“will be the first one to be decided in the post-Chevron era.”

We can’t know, after the Supreme Court’s decision last week in
in _Loper Bright Enterprises v. Raimondo_
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the courts will uphold OSHA’s heat standard. But we do know it will
be much easier for some conservative judge to kill it than it used to
be. _Loper Bright _eliminated “Chevron deference,” a doctrine
dating to 1984’s _Chevron v. NRDC_
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judges to grant some degree of deference to regulatory agencies in
resolving statutory ambiguity. The _Loper Bright _decision takes
that deference away and invites judges who deplore the administrative
state to lay waste to regulations they don’t like.

Since Congress never ordered OSHA, when it created the agency in 1970,
specifically to write a standard protecting workers from extreme
heat—the word “heat” appears nowhere in the statute—business
groups will argue that the standard flunks the _Loper Bright _test.
The standard’s defenders will answer
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court that OSHA’s founding statute
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“to set mandatory occupational safety and health standards” and
that these should be “reasonably necessary or appropriate.” But
who decides what’s “necessary or appropriate”? Before last week,
OSHA (mostly) did. Under _Loper Bright,_ a regulation-hating judge
can. Let the states decide this, the judge may say, and strike down
the standard. Spoiler alert: Red states are already barring
[[link removed]] local
governments from protecting workers from excessive heat.

The heat-injury standard illustrates how _Loper
Bright _may strengthen business’s hand in defeating rules it deems
economically harmful (i.e., pretty much all of them). But in weakening
the administrative state, _Loper_ _Bright _will cause much greater
economic harm because an economy can’t be strong if it operates
without sufficient regulatory guardrails. If, for example, there are
no rules to prevent employers from killing workers by exposing them to
excessive heat, those employers who address the problem responsibly
will be placed at a competitive disadvantage. An economy that requires
40 workers per year to die from heat exposure is not (at least in that
respect) strong. It is recognizably backward and weak.

The economic damage _Loper_ _Bright _causes may prove greatest in a
realm that’s much less emotionally fraught: banking. On June
28, _Fortune_ ran a piece by Michael Del Castillo under the
headline, “Supreme Court Overturning ‘Chevron’ Decision Could
Change Banking Regulation Forever
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Banking, wrote Del Castillo, “is certainly to be among the hardest
hit, with agencies including the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the
Currency, and the Consumer Financial Protection Bureau all likely
scrambling to see how it will impact them.” A headline in _American
Banker_ announced: “Banking Law Is About to Get Weird
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If you believe bank regulators are too strong and need to be taken
down a peg, you are likely a bank executive. If you believe bank
regulators are too weak, and really can’t afford to be rendered much
weaker, then give yourself a gold star for paying attention to the
past four decades. Deregulation ushered in the last two banking
crises: the Savings and Loan crisis
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the 1980s and the financial crisis
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ushered in the Great Recession of 2007–2009. Actually, the latter
was caused less by deregulation than by the federal government’s
refusal to regulate over-the-counter derivatives
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but that amounts to the same thing. More recently, the failures of
Signature Bank and Silicon Valley Bank
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congressional passage of a 2018 law that weakened oversight of midsize
banks and the Fed’s implementation of a 2019 regulation that
weakened oversight still further. I’m not aware of a single bank
crisis in human history brought on by overly aggressive regulation.

The political scientists Jacob Hacker and Paul Pierson coined a useful
term to describe situations like the Clinton administration’s
decision to ignore the urgent advice of Commodities Future Trading
Commission Chair Brooksley Born and, instead, to let the go-go
derivatives market run wild and unregulated. Hacker and Pierson call
this “drift.” Drift occurs, Hacker has written
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when the effects of public policies change substantially due to shifts
in the surrounding economic or social context and then, _despite the
recognition of alternatives_, policymakers fail to update
policies _due to pressure from intense minority interests or
political actors_.

_Loper Bright_ is, among other things, very pro-drift. The more the
economy—indeed, all of contemporary life—migrates away from the
regulatory mechanisms that govern it, the more the high court likes to
shrug and say, “Our hands are tied.” But in the case
of _Loper _it does the opposite, arrogating to judges the power to
decide whether new regulations live or die. Now it’s the regulators
whose hands are tied.

The biggest bank regulation under consideration right now is a rule
[[link removed]] proposed
jointly by the Fed, the FDIC, and the Comptroller to bring U.S. banks
in compliance with an international agreement struck after the
financial crisis. The agreement, called Basel III
[[link removed]], required banks to build up more
capital reserves against a downturn, take on less debt, and respond
more quickly to market conditions. The nation’s largest banks would
have to increase capital reserves by 19 percent. The banking industry
is dead set against the new requirements because they would cut into
profits, and it’s managed to get Fed Chair Jerome Powell to promise
“broad and material” changes before the rule is issued in final
form. Even so, the bank lobby will almost certainly challenge the
final rule in court.

How will _Loper Bright_ affect such litigation? The law firm Venable
is advising
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banking clients that it will strengthen legal challenges based on the
1946 Administrative Procedures Act (which Chevron deference violated,
according to _Loper Bright_) and the “major questions” and
“nondelegation” doctrines, which also curb regulatory
authority. _Loper Bright _will also empower banks’ legal
challenges to anti-laundering regulations, Venable said
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and might help thwart regulating cryptocurrency by the Securities and
Exchange Commission.

Daniel Tarullo, a professor of law at Harvard and former Fed governor
who led the Fed’s implementation of the Dodd-Frank financial reform
law, advised me not to overlook two other Supreme Court decisions from
the past week, _Corner Post v. Board of Governors_
[[link removed]] and _SEC
v. Jarkesy_
[[link removed]]. “The
one that concerns me the most from a pure banking regulatory point of
view is _Corner Post_,” Tarullo said. _Corner Post__,_ which was
issued three days after _Loper Bright,_ effectively eliminates the
statute of limitations on filing lawsuits against regulations so that
companies formed long after they were enacted can challenge them in
court. _SEC v. Jarkesy,_ which was handed down the day
before _Loper Bright,_ ruled unconstitutional the Securities and
Exchange Commission’s use of in-house hearings to impose financial
penalties on fraudsters.

_Loper Bright__,_ Tarullo told me, worries him least because the
statutory provisions that govern financial agencies don’t require
much interpretation. “It’s very clear that Congress has told the
banking agencies to regulate capital, regulate liquidity,” and so
on, he said. “It’s not like interpreting what a single source is
under the Clean Air Act,” which was at issue in the
1984 _Chevron_ decision.

But Tarullo also said that, in combination, _Corner
Post_ and _Loper Bright_ could encourage litigants to challenge
older bank regulations on the grounds that they overstepped statutory
boundaries—even though the high court said in _Loper Bright_ that
the decision would not apply retroactively. Noting that the more
conservative federal judges are already fairly aggressive in their
interpretations of Supreme Court rulings, Tarullo said, “You might
get some newly chartered bank that brings a challenge to a 20-year old
regulation” and lucks out with a justice willing to strike it down
on the basis that it was written under the presumption
of Chevron deference.

Even if Tarullo is right that economic stability is imperiled less
by _Loper Bright_ than by the other two decisions, I hardly call
that comforting. Conservatives may tell you that the economy performs
better when there are fewer regulations, but the history of banking
tells a different story. The Supreme Court just made the U.S. economy
less stable, and it achieved this by gumming up the administrative
state. See you at the next bank bailout.

_TIMOTHY NOAH is a New Republic staff writer and author of The
Great Divergence: America’s Growing Inequality Crisis and What We
Can Do About It._

_THE NEW REPUBLIC was founded in 1914 to bring liberalism into the
modern era. The founders understood that the challenges facing a
nation transformed by the Industrial Revolution and mass immigration
required bold new thinking._

_Today’s New Republic is wrestling with the same fundamental
questions: how to build a more inclusive and democratic civil society,
and how to fight for a fairer political economy in an age of rampaging
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* Supreme Court
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* regulation
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* Economy
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* Banking system
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* big banks
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