Supreme Court ruling threatens innovation, risks Balkanization of US economy

The Supreme Court’s decision to overturn the four-decade-old Chevron deference doctrine threatens to destabilize America’s economic stability and innovation. The ruling shifts regulatory power from federal agencies to the courts, creating uncertainty and potential fragmentation of the nation’s economy.

Supreme Court’s Chevron reversal threatens to fragment the U.S. economy and stifle innovation and consistency

Despite popular opinion, the U.S. Supreme Court’s decision to overturn the four-decade-old “Chevron deference” doctrine may be one of the most anti-business decisions yet. The damage to businesses, especially highly innovative ones, could be significant, with serious long-term consequences for the U.S. economy.

In essence, the recent decision in Loper Bright Enterprises v. Raimondo establishes that courts are no longer required to defer to executive agency interpretations of a statute when Congress has been silent or ambiguous on specific rules to enforce the law. While this may seem obscure, the practical implications are substantial. In the United States, the final rule-makers on a variety of issues, including drug approvals, transportation regulations, and food safety, will now be the courts rather than regulators. This change is being implemented without the necessary scientific and domain expertise.

Before this ruling, it was feasible for most American companies to launch new products in all 50 states at once. The overwhelming size of the market and consistent regulation generated enormous economies of scale and capital was allocated efficiently. This is one reason why the United States has become such a powerful magnet for innovators.

The Supreme Court has facilitated the Balkanization of the U.S. economy by limiting the executive branch’s ability to create and enforce regulations. As a result of the regulatory vacuum at the federal level, states will increasingly take on critical issues. The United States will likely emerge as smaller regional and state economies, often organized around local business interests and ideology, rather than a large, cohesive economy of 330 million people subject to the same rule of law.

While that may be feasible for an issue like education, it may be a more effective approach to economic policy. Appliances in Massachusetts may be held to completely different standards than they are in Florida, and food that is considered safe in Texas may be considered dangerous in California, among other possible outcomes.

Chevron Doctrine reversal threatens economic stability, increases legal uncertainty and stifles innovation

The abandonment of the Chevron Doctrine eliminates the predictability that is essential to a robust economy and stable capital markets. Virtually every regulation previously implemented by a federal agency is now subject to challenge. Judges and juries, requiring more specialized training, will decide issues previously resolved or informed by experts and scientific authorities. This is important because the outcome of a dispute can be reasonably predicted when it is submitted to experts. This is not the case when the same question is entrusted to judges and juries.

Federal regulation may have been objectionable to Chevron’s devotion; however, it was uniform across all economic actors. If a court finds a federal rule objectionable, there is potential for a flood of divergent state regulations.

The first casualty will be innovation. Consider the challenge of introducing a new Food and Drug Administration-approved product into this ambiguous environment. Plaintiffs, who may have been financially supported by a company with a competing, inferior product already on the market, can now question the product’s safety and cast doubt on career scientists. It appears that incumbents are consistently favored over innovators in litigation.

And the issue doesn’t end there. Consider the possibility that federal agencies could determine that they can’t set guidelines for the amount of “forever plastic” allowed in packaging after the Chevron ruling. One state could respond by banning such packaging. Conversely, another state, home to numerous large plastics manufacturers, could ban the packaging that the first state favors. Companies would be forced to exit specific markets or produce two different products.

According to the Business Times, the Supreme Court’s decision could hamper economic development. Few business leaders believe the federal government is effective in approving major initiatives. However, Chevron’s reversal could worsen the process by facilitating lawsuits challenging federal permitting decisions, making the process less predictable.

It is no coincidence that the least innovative industries in the United States are those that are already regulated at the state level: financial services, utilities, and health care. State-level companies can only benefit from economies of scale if they offer separate products in each state. State laws and regulations are often even more opaque than those at the federal level. As state regulations grow, the United States will resemble Europe, where the complexity of different standards and requirements stifles innovation from the start.

A uniform rule of law and a cohesive national economy are the fundamental foundations of the American economic miracle, and Chevron’s reversal poses an existential threat to them. The decision will have a detrimental impact on businesses, especially those that are entrepreneurial, and all American workers and consumers will bear the subsequent costs. Special interests, incumbents, and lawyers will benefit. They will aggravate an already overloaded legal system by loading the courts with cases that judges cannot hear because of a lack of expertise.

This is a case where the cure is more harmful than the disease. Chevron’s reversal is not pro-business; it favors the court.