Deregulation in the United States: History and Policy

Deregulation refers to the deliberate reduction or elimination of government-imposed rules governing industries, markets, or specific economic activities. This page traces the historical arc of federal deregulatory policy in the United States, examines the legal and administrative mechanisms through which deregulation is executed, identifies the industries and contexts where it has most frequently been applied, and maps the decision boundaries that distinguish genuine deregulation from regulatory restructuring. Understanding this landscape matters because deregulatory actions carry binding legal consequences and often reshape entire sectors of the economy.

Definition and scope

Deregulation, at the federal level, is the partial or total removal of statutory or administrative constraints that previously governed how firms could price goods, enter markets, operate infrastructure, or compete with rivals. It is not the absence of government involvement — deregulated industries often remain subject to antitrust law, consumer protection statutes, and residual agency oversight — but rather a deliberate contraction of prescriptive control.

The scope of deregulation spans two legal registers. First, statutory deregulation requires an act of Congress to amend or repeal authorizing legislation. The Airline Deregulation Act of 1978, for example, phased out the Civil Aeronautics Board's authority over airfares and routes (Airline Deregulation Act, Pub. L. 95-504), eventually dissolving the agency entirely by 1985. Second, administrative deregulation operates through agency rulemaking: agencies withdraw proposed rules, rescind existing regulations, or narrow enforcement priorities without requiring new legislation. The regulatory agency rulemaking process governs both directions of change — adding rules and removing them — under the same procedural requirements of the Administrative Procedure Act (APA), 5 U.S.C. §§ 551–559.

Deregulation is distinct from regulatory forbearance (an agency declining to enforce a rule it lacks resources to contest) and from preemption (federal rules displacing state rules). These distinctions matter for legal challenges; a rule rescission that fails to satisfy the APA's "reasoned explanation" standard is subject to reversal under judicial review, as the Supreme Court established in Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983).

How it works

Federal deregulation follows one of four procedural pathways:

1. Congressional repeal or amendment — Congress passes legislation eliminating or narrowing an agency's statutory mandate. The Depository Institutions Deregulation and Monetary Control Act of 1980 (Pub. L. 96-221) phased out Regulation Q interest rate ceilings, directly restructuring deposit markets.

2. Notice-and-comment rulemaking to rescind — An agency publishes a Notice of Proposed Rulemaking (NPRM) proposing withdrawal of an existing rule, receives public comment, and issues a final rule of rescission. The notice-and-comment rulemaking process applies equally to rescissions as to new rules.

3. Executive Order directing regulatory review — Presidents have used executive orders to mandate cost-benefit screening of existing regulations. Executive Order 12291 (1981) and Executive Order 13771 (2017) each required agencies to identify rules for elimination; the latter imposed a "one-in, two-out" formula requiring the removal of 2 existing regulations for every new one issued. The Office of Information and Regulatory Affairs (OIRA), housed within OMB, coordinates this review — a process detailed further on the OIRA and regulatory review page.

4. Congressional Review Act (CRA) disapproval — Under the CRA, 5 U.S.C. §§ 801–808, Congress may pass a joint resolution of disapproval to nullify a rule within 60 legislative days of its submission, and rules so voided cannot be reissued in substantially the same form without new statutory authorization.

The economic rationale underlying deregulatory decisions typically involves regulatory cost-benefit analysis, which weighs compliance burdens against projected market efficiency gains, consumer price reductions, or innovation incentives.

Common scenarios

Deregulation has concentrated in five sectors with distinct historical timelines:

Transportation (1978–1980): The Airline Deregulation Act of 1978 eliminated federal authority over domestic fares and routes. The Staggers Rail Act of 1980 (Pub. L. 96-448) reduced Interstate Commerce Commission oversight of railroad pricing, credited by the Association of American Railroads with enabling rate reductions that approached 45% in inflation-adjusted terms by the mid-1990s.

Telecommunications (1996): The Telecommunications Act of 1996 (Pub. L. 104-104) opened local telephone markets to competition and restructured the Federal Communications Commission's authority. The telecommunications regulatory agencies page covers the FCC's continuing residual role.

Energy (1978–1992): The Natural Gas Policy Act of 1978 and subsequent FERC Order 636 (1992) deregulated wellhead gas prices and restructured pipeline access, transforming the natural gas market from a regulated monopoly into a competitive wholesale market. The energy regulatory agencies page addresses FERC's current jurisdiction.

Financial services (1980–1999): The Gramm-Leach-Bliley Act of 1999 (Pub. L. 106-102) repealed Glass-Steagall's separation of commercial and investment banking, consolidating permissible activities for bank holding companies.

Environmental and workplace rules (periodic): Executive-branch deregulation has periodically targeted rules issued by the Environmental Protection Agency and the Occupational Safety and Health Administration. These rescissions typically proceed through notice-and-comment and face sustained litigation given the APA's reasoned-decision requirement. The environmental regulatory agencies and health and safety regulatory agencies pages detail the agencies most affected.

Decision boundaries

Determining whether a government action constitutes genuine deregulation — versus restructuring, preemption, or delegation — requires applying several analytical distinctions:

Deregulation vs. reregulation: When an industry transitions from public utility rate regulation to market competition, the state often substitutes antitrust enforcement for price controls. This is reregulation under a different framework, not deregulation. The restructuring of electricity markets after the Energy Policy Act of 1992 illustrates this: FERC retained jurisdiction over wholesale rates and transmission access even as retail markets opened.

Federal deregulation vs. state authority: Federal deregulation removes federal constraints but does not extinguish state authority. After airline deregulation, states retained authority over intrastate routes until courts and Congress clarified preemption boundaries. The independent vs. executive regulatory agencies page addresses how agency type affects deregulatory scope.

Procedural completeness: A deregulatory rule that was not preceded by a complete NPRM process, or that fails to address significant comments in the final rule's preamble, is procedurally vulnerable. Courts applying State Farm scrutiny have vacated rescissions on these grounds without reaching the merits of the underlying policy choice.

Sunset provisions vs. permanent rescission: Some deregulatory measures include sunset clauses requiring congressional reauthorization to continue. Absent reauthorization, regulation can snap back automatically. Permanent statutory repeal forecloses this possibility, which is why industry stakeholders frequently prefer legislative deregulation over executive action.

The history of US regulatory agencies page provides the broader institutional context for the regulatory frameworks that deregulatory actions have targeted, while the congressional oversight of regulatory agencies page covers how Congress monitors and sometimes reverses executive-branch deregulatory initiatives. A comprehensive overview of the regulatory structure within which deregulation operates is available at the site index.