Monthly Archives: May 2022

This Week in Ridiculous Regulations

Posted on May 9, 2022 | Comments Off on This Week in Ridiculous Regulations

The Federal Reserve took another small step to tamping down inflation, and the latest jobs report had mixed news. Agencies issued new regulations ranging from fuel economy to utility poles.

On to the data:

  • Agencies issued 56 final regulations last week, after 36 the previous week.
  • That’s the equivalent of a new regulation every three hours.
  • With 1,079 final regulations so far in 2022, agencies are on pace to issue 3,065 final regulations this year.
  • For comparison, there were 3,257 new final regulations in 2021, President Biden’s first year, and 3,218 in 2020, President Trump’s final year.
  • Agencies issued 42 proposed regulations in the Federal Register last week, after 36 the previous week.
  • With 768 proposed regulations so far in 2022, agencies are on pace to issue 2,182 proposed regulations this year.
  • For comparison, there were 2,094 new proposed regulations in 2021, and 2,094 in 2020.
  • Agencies published 394 notices last week, after 494 notices the previous week.
  • With 7,895 notices so far in 2022, agencies are on pace to issue 22,429 notices this year.
  • For comparison, there were 20,018 notices in 2021. 2020’s total was 22,458.
  • Last week, 1,867 new pages were added to the Federal Register, after 1,298 pages the previous week.
  • The average Federal Register issue in 2022 contains 308 pages.
  • With 27,396 pages so far, the 2022 Federal Register is on pace for 77,830 pages.
  • For comparison, the 2021 Federal Register totals 74,352 pages, and 2020’s is 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are 12 such rules so far in 2021, two from the last week.
  • This is on pace for 37 economically significant regulations in 2022.
  • For comparison, there were 26 economically significant rules in 2021 and five in 2020.
  • The total cost of 2022’s economically significant regulations so far ranges from net savings of $1.92 billion to net savings of $25.30 billion. However, this figure is incomplete. Three economically significant rules issued this year do not give the required cost estimates.
  • For comparison, the running net cost tally for 2021’s economically significant rules ranges from $13.54 billion to $19.36 billion. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • There are 86 new regulations meeting the broader definition of “significant” so far in 2022. This is on pace for 244 significant rules for the year.
  • For comparison, there were 387 such new regulations in 2021, and 79 in 2020.
  • So far in 2022, 300 new regulations affect small businesses, on pace for 852. Thirty of them are significant, on pace for 85.
  • For comparison, there were 912 rules in 2021 affecting small businesses, with 101 of them classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation

Fed Hikes Interest Rate: Bigger News on Bond Portfolio Mostly Neglected

Posted on May 5, 2022 | Comments Off on Fed Hikes Interest Rate: Bigger News on Bond Portfolio Mostly Neglected

The Fed this week announced a half percentage point hike in its federal funds rate. This is the right thing to do, but it will have only a small effect on inflation. Far more important is an announcement the Fed made the same day, but got far less coverage. It will finally begin winding down its balance sheet of government bonds in June. Buying and selling bonds is the Fed’s single most powerful inflation-adjustment tool, far more powerful than interest rate adjustments. It should have started selling off bonds months ago, but June is better than never.

Inflation (or deflation) happens when there is a mismatch between the money supply and real economic output. If one grows or shrinks, the other needs to grow or shrink by a matching amount, or there will be inflation or deflation. The Fed’s job is basically to play a matching game.

Buying bonds is how the Fed directly increases the money supply—which directly increases the inflation rate. When the Fed buys bonds, it pays for them with money that it newly creates. This new money then winds its way through the economy.

If the Fed wants to directly shrink the money supply—and directly reduce the inflation rate—it can sell bonds. The money it makes from the sales can then be retired from circulation. Interest rate adjustments, by comparison, have only indirect effects on the amount of money in circulation.

In ordinary times, the Fed should engage in some bond buying. If real economic output goes up by 3 percent, the money supply should go up by a matching amount to prevent deflation. Since the Fed has a 2 percent target inflation rate, the Fed would instead usually react to 3 percent growth, with a 5 percent money increase—3 percentage points to match real growth plus two extra percentage points to meet the Fed’s inflation target. (The Fed’s exact response should vary depending on other factors, but this simplified illustration tells the essential story.)

That is not what happened during the pandemic. The Fed’s bond holdings grew by 72 percent in three months, then grew some more. It was the largest bond-buying spree in the Fed’s history. The Fed’s bond holdings totaled about $4.1 trillion when COVID-19 hit in February 2020. Three months later, it was $7.1 trillion. It continued buying bonds until March 2022, and its portfolio now stands at $8.9 trillion.

The Fed’s announced selloff is modest in this context, and may not be enough to substantially reduce inflation when the lag time ends sometime next year. It will reduce its $8.9 trillion portfolio by $47.5 billion per month for three months, then $95 billion per month for an unspecified amount of time.

Winding down inflation comes with a risk of recession, which explains the Fed’s timidity, especially in light of last quarter’s GDP contraction. So, the Fed has its reasons, though they are not entirely convincing, considering the short-term and long-term pain that inflation causes.

Nor did the Fed’s initial buying spree come out of nowhere. When people stop spending money, the Fed’s typical response is to inject some new money into the economy as a form of stimulus. It can work in the short run, though usually with the tradeoff of some slowdown later on.

The trouble is that the Fed misread the situation during the pandemic. It wasn’t a typical recession. There was no financial crisis, housing bubble, or economic malady. A healthy economy shut down for a bit, then opened back up. The virus had to pass so people could safely open back up, and that’s it. The Fed used the traditional tools to fight a new battle, and that is the biggest driver of today’s inflation. Overspending by the political branches didn’t help, but that explains only about 1 percentage point of 8.5 percent inflation.

There is a lag time in bond-buying actions from about six 6 to 18 months, since it takes time for new money to move from bond sellers’ wallets out to the larger economy. The rise in inflation that began in 2021 was the result of the Fed’s 2020 bond-buying spree. Since the Fed isn’t trimming its bond portfolio until June 2022, even if inflation has already peaked, it will likely remain high at least until early 2023 and possibly longer, since the Fed’s more recent buyups haven’t yet worked through the economy, and the selloffs to counter them are both late and relatively small. Relief would come sooner had the Fed acted sooner and more boldly.

Despite last quarter’s GDP decline, economic output is already back to where it would have been if COVID had never happened. Because of today’s needless inflation, the Fed’s delayed response in fixing it, plus overspending and general policy bungling by Congress and two presidents, a recession that COVID couldn’t cause might happen anyway. While this week’s interest rate hike will get all the attention, the real news is the Fed’s coming bond selloff.

A subsequent post will explain why the federal funds rate has only a small effect on inflation, and why journalists and stock markets should pay less attention to it.

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Posted in Economics, Monetary Theory

This Week in Ridiculous Regulations

Posted on May 2, 2022 | Comments Off on This Week in Ridiculous Regulations

The economy shrank at an annualized 1.4 percent pace in the first quarter of 2022. The Department of Homeland Security announced a new “Disinformation Governance Board.” Elon Musk bought Twitter. The number of new final regulations this year topped 1,000. Agencies issued new regulations ranging from Klondike Bluffs to changing babies.

On to the data:

  • Agencies issued 36 final regulations last week, after 41 the previous week.
  • That’s the equivalent of a new regulation every four hours and four minutes.
  • With 1,023 final regulations so far in 2022, agencies are on pace to issue 3,081 final regulations this year.
  • For comparison, there were 3,257 new final regulations in 2021, President Biden’s first year, and 3,218 in 2020, President Trump’s final year.
  • Agencies issued 36 proposed regulations in the Federal Register last week, after 31 the previous week.
  • With 726 proposed regulations so far in 2022, agencies are on pace to issue 2,187 proposed regulations this year.
  • For comparison, there were 2,094 new proposed regulations in 2021 and 2,094 in 2020.
  • Agencies published 494 notices last week, after 526 notices the previous week.
  • With 7,501 notices so far in 2022, agencies are on pace to issue 22,593 notices this year.
  • For comparison, there were 20,018 notices in 2021. 2020’s total was 22,458.
  • Last week, 1,298 new pages were added to the Federal Register, after 1,809 pages the previous week.
  • The average Federal Register issue in 2022 contains 308 pages.
  • With 25,550 pages so far, the 2022 Federal Register is on pace for 76,958 pages.
  • For comparison, the 2021 Federal Register totals 74,352 pages, and 2020’s is 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are 10 such rules so far in 2021, none from the last week.
  • This is on pace for 30 economically significant regulations in 2022.
  • For comparison, there were 26 economically significant rules in 2021 and five in 2020.
  • The total cost of 2022’s economically significant regulations so far ranges from net savings of $1.14 billion to $3.74 billion. However, this figure is incomplete. Not all such rules issued this year give the required cost estimates.
  • For comparison, the running cost tally for 2021’s economically significant rules ranges from net costs of $13.54 billion to $19.36 billion. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • There are 79 new regulations meeting the broader definition of “significant” so far in 2022. This is on pace for 238 significant rules for the year.
  • For comparison, there were 387 such new regulations in 2021, and 79 in 2020.
  • So far in 2022, 284 new regulations affect small businesses, on pace for 849. Thirty of them are significant, on pace for 90.
  • For comparison, there were 912 rules in 2021 affecting small businesses, with 101 of them classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

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Posted in regulation