Moneybeat: Reining in regulators

MARY REICHARD, HOST: Coming up next on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It's time now to talk business, markets, and the economy with financial analyst and advisor David Bahnsen. David is head of the wealth management firm the Bahnsen Group, and he is here now. David, good morning.

DAVID BAHNSEN: Well, good morning, Nick. Good to be with you.

EICHER: Well, let's begin today by returning to the big Supreme Court ruling on the power of administrative agencies, David. I know this one has substantial economic effects, or at least has the potential to have substantial economic effects. But as you heard our analysis a moment ago, this case, Loper Bright Enterprises v. Raimondo, that reverses a doctrine of law now 40 years old this year, giving substantial power to regulatory agencies, and now it's gone. This is one of the big ones, David.

BAHNSEN: There's no question that that was the biggest story of all of the Supreme Court rulings in terms of economic impact. In the details of it all, it will take a little time to be able to figure out what the actual applications are going to look like, but at a high level, I think the headlines are capturing this very fairly. And you may have noticed over the years, it's rare for me to say that media headlines are capturing something fairly, but I think that this is essentially what they are saying it is, which is the Supreme Court ruling in a manner that is limiting the regulatory power of the administrative state as it pertains particularly to some of these agencies that are not directly accountable and that represent an avenue for federal government expansion that comes at a cost in the economy: the cost of the regulation, the ambiguity it creates that hinders economic calculation. It's a profound ruling, and there was a lot of build up to what it would mean legally for some time. And I think coming at it from the economic angle, that's for good reason.

EICHER: Well, David, I'm curious about your economic takeaways from the Thursday night debate. I think we all watched with a kind of shock at how diminished President Biden showed himself to be. My own view here: this exposes big news agencies big time. They have the privilege of close access to the White House. They knew what we all saw with our own eyes. They've known it for a long time. They didn't say anything about it all these years until, of course, the evidence became impossible to ignore. But I digress here. All apart from that shock of what we saw on Thursday night, David, to the extent that anything came out on the economic front, what is your analysis of that?

BAHNSEN: Yes, I imagine that there are plenty of people that will give the appropriate political commentary on the debate better than I would. It does seem to be a strikingly bipartisan consensus about what a sad affair it was for President Biden and the clear revelation around his state, physically and mentally.

Economically, though, I found it interesting that there was so little substance around spending, around deficits, around the role that the big spending that has taken place and build up of excessive federal government indebtedness, the role that that has played with hindering economic growth. That's something I talk about all the time, but I'm not running for president, and I don't understand why the most obvious economic issue of our day, the hindering of economic growth taking place by a buildup of an unsustainable level of government debt, the only comment that came up about the unaffordability of Social Security was President Biden saying he wanted to tax millionaires more, which is just simply not a serious proposal, doesn't come close to covering the gap. And you know, candidly, President Trump has said he doesn't want to talk about entitlement reform either.

So that's okay, the debates are not generally going to be a great place anymore, since Lincoln-Douglas, for real substantial policy depth. There was far bigger political ramifications out of what took place the other night, but that doesn't change the fact that lingering out there is still questions that were not getting answered about an economic vision for our country.

EICHER: Well, David, this past week, we got a well-watched data point on economic conditions, specifically that of inflation. The indicator was the personal consumption expenditures report. It came out for May. Let's touch on that real quick.

BAHNSEN: Yeah, I think that the Fed, it wasn't a huge surprise, but it did come in, in line with expectations of basically just 0.1% on the month, only 2.6% year over year. And Nick, the other thing I want to point out that didn't get talked about a lot: goods prices on the year. So obviously, a lot in our economy is not goods, it is, we spend a lot of money on services too, but goods prices are in deflation. They now have had a negative price movement year over year. So when you look into the weeds of all this, there's a little bit more data there to unpack.

EICHER: All right, David, let's do this week's defining terms. And for that, I'd like to return to the beginning, speaking of government regulation. And there is an entire glossary of terms around the regulation of economic life, and a big one, I think, is at the heart of what drove all of the legal wrangling that led to the court's decision, effectively, to put a check on the administrative state. And that economic term is "regulatory capture." Why don't you define that this week and tell us why that matters?

BAHNSEN: Ultimately, Nick, regulatory capture is an economic theory that when you have overly empowered regulatory agencies, they end up not acting in the best interest of the public, but in the best interest of preserving their own power, which often comes paradoxically by regulating in the favor of those whom they're regulating, that it creates a crony capitalism. And regulatory capture over time is a byproduct of human nature.

This is not a difficult concept in economics or in political theory for Christians to understand, because we have a belief about human nature rooted in the doctrine of original sin. Lord Acton famously said that "power corrupts and absolute power corrupts absolutely." Regulatory capture is just the byproduct of all of those realities playing out, and those who believe that a greater and greater and greater regulatory state improves and improves and improves the results for the public are not paying attention.

Regulatory capture refers to when greater regulation goes away from protecting the public and instead towards protecting the regulators and the regulated, as opposed to the broader common good. I have used the example here on Moneybeat and elsewhere in my writing for some time that as a heavy investor myself in oil and gas and in the energy sector, I don't have any doubt in my mind, the regulatory capture helps big energy companies and hurts small energy companies because of the ability of larger companies to navigate through the ramifications of regulation that smaller companies don't have such ability, with lobbyists and legal resources and and so forth.

So that's regulatory capture, and that's what hopefully the Supreme Court ruling in the Chevron case will help to alleviate, at least on the margin.

EICHER: Alright. David Bahnsen, Founder, Managing Partner and Chief Investment Officer of the Bahnsen Group. You can check out David's latest book, Full-Time: Work and the Meaning of Life at fulltimebook.com. David, I hope you have a great week. We'll see you next time.

BAHNSEN: Thanks so much, Nick. Good to be with you.

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