In a major Supreme Court ruling last month, the 1984 Chevron doctrine, which granted regulators more flexibility in setting rules, was overturned. According to Kenneth Jacobs, Executive Chairman of financial advisory and asset management firm Lazard, this decision could have significant consequences for innovation and the overall vitality of the U.S. economy.

In an op-ed for Project Syndicate, Jacobs argues that the Supreme Court's ruling in the case of Loper Bright Enterprises et al v. Raimondo, Secretary of Commerce, is actually anti-business and contrary to popular belief. The reversal of the Chevron doctrine means that federal agencies will no longer receive automatic deference from the courts when ambiguous rules are at play.

Jacobs points out that this restriction on the executive branch's ability to craft and enforce regulations can lead to the fragmentation of the U.S. economy. With the rulemaking vacuum at the federal level, important issues may now be increasingly addressed by individual states. Instead of a cohesive national economy, the U.S. could potentially see the emergence of smaller regional and state economies, organized around ideology and local business interests.

The disbandment of the Chevron doctrine is expected to impact economic predictability and stability. Any rule from a federal agency can now be contested, allowing judges and juries without specialized training to make decisions. While not all regulations are always favorable to businesses, at least under the Chevron doctrine, rules were applied nationwide. Now, a patchwork of state-by-state rules could emerge, potentially stifling innovation and favoring established companies over new competitors.

Furthermore, the Supreme Court's decision may also result in a less efficient and predictable federal permitting process, impacting economic development. Kenneth Jacobs warns that a proliferation of state-level regulations could lead the U.S. to resemble Europe, where varying standards and requirements hinder innovation right from the start.

This argument by Jacobs contradicts the viewpoint of some industry groups, which contend that regulator overreach has made doing business burdensome and unpredictable. The U.S. Chamber of Commerce, for instance, asserts that the lack of stability, uncertainty, and accountability in the law can generate significant losses in productivity, investment, and innovation.

Although it may take years to fully evaluate the economic impact of the Supreme Court's decision, financial regulators are likely to be the most affected. Entities such as the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau could face significant challenges.

While banking industry groups have celebrated the ruling as a win for accountability and predictability, critics argue that agencies may exceed their statutory authority, hindering the ability of banks to serve their customers.

In conclusion, the Supreme Court's decision to overturn the Chevron doctrine has sparked a heated debate about its potential consequences for innovation and the broader U.S. economy. With the regulatory landscape in flux, the future direction of the nation's economic vitality remains uncertain.