Regime Uncertainty—Now Maybe People Will Take the Idea Seriously

Writing in today’s Wall Street Journal, Gary S. Becker, Steven J. Davis, and Kevin M. Murphy discuss how the government’s multifaceted efforts to “reform” health care, energy and environmental controls, financial regulation, taxation, monetary policy-making, and various other aspects of the politico-economic order have created such great uncertainty that business people are reluctant to invest or to hire new workers, and therefore recovery from the present recession, to the extent that it is occurring at all, is proceeding unusually slowly. As I read this article, I nodded yes ... yes ... yes ... they are talking about regime uncertainty, all right.

I have been promoting this idea publicly since 1997, in articles, songs, dances (without wolves), stand-up comedy, performance art, and blog posts, not to mention my tedious lectures and my boring 2006 book Depression, War, and Cold War. I cannot say that the world has beaten a path to my door as I’ve sought to convince my fellow economists that this phenomenon was important in retarding recovery from the Great Depression and, in all likelihood, in retarding recovery from the present recession (although, to be fair, I must acknowledge that a few of my fellow economists and others have taken note).

Before I could write anything about the WSJ article, however, Brooks Wilson wrote a nice post about it at his blog, which I recommend. Wilson has artfully combined my crisis hypothesis on the growth of government with my regime-uncertainty argument to produce what he calls “the crisis paradox”—“crisis is the best time politically and worst time economically to enact fundamental economic reform.” Indeed. But, of course, that is precisely how things tend to happen, making political entrepreneurship the mortal enemy of economic prosperity.