Wednesday, December 14, 2011

Regime Uncertainty and the Non-Recovery

Robert Higgs introduced the concept of “regime uncertainty”, government policies and actions that threaten property rights, in his outstanding paper, Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War to explain the depth and duration of the Great Depression with special attention to the “Roosevelt recession” of 1937 to 1938, a recession within a depression. Commentators have applied the concept to predict or explain why the current recovery would be, or is, a slow jobless recovery.

As examples see:

Today’s Wall Street Journal, “Regulation for Dummies” (p. A20) provides more evidence that regime uncertainty is a major factor in leading forward looking entrepreneurs and managers to be hesitant to expand old or create new enterprises. The evidence is provided in this chart (below) reproduced in the Journal from the Unified Agenda, Regulatory Service Center.

The Journal observes, it is not just existing or newly approved regulations that matter. “(T)he regulatory future matters as much. The Administration’s pipeline is clogged with proposed rules and plans to propose rules, which every business survey says are contributing to the policy uncertainty that is harming growth and hiring.”

Echoing Higgs, the Journal concludes, “The evidence is overwhelming that the Obama regulatory surge is one reason the current economic recovery has been so lackluster by historical standards. Rather than nurture an economy trying to rebuild confidence after a financial heart attack, the Administration pushed through its now-famous blitz of liberal policies on health care, financial services, energy, housing, education and student loans, telecom, labor relations, transportation and probably some other industries we’ve forgotten. Anyone who thinks this has only minimal impact on business has never been in business.” What should be added to the list is the real threat of significantly higher future tax burdens.


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