Supreme Court ruling threatens innovation, risks Balkanizing US economy

The Supreme Court’s decision to overturn Chevron’s four-decade-old deference doctrine threatens to disrupt economic stability and innovation in the U.S. The ruling shifts regulatory authority from federal agencies to the courts, creating uncertainty and potentially fragmenting the nation’s economy.

Supreme Court Chevron Reversal Threatens to Fragment U.S. Economy, Stifling Innovation and Cohesion

Contrary to popular belief, the U.S. Supreme Court’s decision to reverse the 40-year-old Chevron deference doctrine is potentially one of the most anti-business rulings ever. The damage to companies, especially highly innovative ones, could be significant, with serious long-term repercussions for the U.S. economy.

In fact, the recent decision in Loper Bright Enterprises v. Raimondo holds that courts no longer have to defer to executive branch agencies’ interpretations of statutes when Congress is silent or ambiguous on specific provisions in order to enforce the statute. While this may seem vague, the practical implications are significant. In the United States, the courts, not regulators, will now be the ultimate decision-makers on a variety of issues, including drug approvals, transportation regulations, and food safety. This change is being implemented without the necessary scientific and technical expertise.

Before this ruling, most American corporations could introduce new products in all 50 states simultaneously. The overwhelming size of the market and consistent regulations generated huge 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 make and enforce regulations. As a result of the regulatory vacuum at the federal level, states will increasingly handle critical issues. The United States will likely end up with smaller regional and state economies, often organized around local business interests and ideologies, rather than a large and cohesive economy of 330 million people subject to the same rule of law.

While this may be feasible for issues like education, it may be a more effective approach to economic policy. Household appliances could be held to entirely different standards in Massachusetts than in Florida, and food considered safe in Texas could be deemed unsafe in California, among other possible outcomes.

Reversing the Chevron Doctrine Threatens Economic Stability, Increases Legal Uncertainty, and Stifles Innovation

The abandonment of the Chevron Doctrine ends the predictability essential to a strong economy and stable capital markets. Virtually every regulation previously implemented by a federal agency is now subject to challenge. Judges and juries, who require more specialized training, will decide issues that have already been resolved or informed by experts and scientific authorities. This is important because the outcome of a dispute can be reasonably predicted when presented to experts. It is different when the same question is presented to judges and juries.

Federal regulations may have been unacceptable under Chevron’s pressure; however, they were the same for all business entities. When a court rules that a federal regulation is unacceptable, there is the potential for an avalanche of divergent regulations at the state level.

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

And the problem doesn’t end there. Consider the possibility that federal agencies could find they can’t set guidelines for how much “forever plastic” can be used in packaging after the Chevron decision. One state could respond by banning such packaging. And another state, with many large plastics producers, could ban the packaging that the first state favors. Companies would be forced to leave certain markets or make two separate products.

The Supreme Court’s decision could stymie economic development, Business Times reported. Few business leaders believe the federal government is effective in approving large initiatives. But Chevron’s revocation could tighten the process by making it easier to litigate challenges to 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 by providing distinct products in each state. Legislation and regulation at the state level are often even more opaque than at the federal level. As state regulation increases, the United States will become more like Europe, where the complexity of different standards and requirements makes innovation difficult from the outset.

The rule of law and a cohesive national economy are the foundational building blocks of the American economic miracle, and the Chevron reversal poses an existential threat to them. This decision is damaging to businesses, especially entrepreneurial businesses, and all American workers and consumers will pay the subsequent costs. The beneficiaries will be special interests, incumbent businesses, and lawyers. They will worsen an already overburdened judicial system by filling the courts with cases that judges lack the expertise to decide.

This is a case where the cure is worse than the disease. Chevron’s reversal is bad for business; it’s good for the court.