Government Spending and Regime Uncertainty—a Clarification

In view of my sixteen-year campaign to bring about an understanding of the idea of “regime uncertainty,” one might think that I would be gratified by the growing recognition of the importance of the closely related (but narrower) idea of “policy uncertainty” in relation to the unusually slow recovery from the bust of 2007-2009. However, I notice that many commentators (for example, Andy Sullivan, writing recently for Reuters) are interpreting the ill effects of the current policy uncertainty as having something to do especially with the congressional squabbling about sequesters, shutdowns, and other imagined horrors connected with Congress’s inability to write an annual budget and stick with it without ongoing emergency adjustments (e.g., increases in the statutory limit on public debt). These commentators suppose that such policy uncertainty harms the recovery because it impedes the public’s reliance on relentless increases in government spending, which they regard along Keynesian lines as a positive contribution to economic growth.

In contrast, I consider regime uncertainty as a form of uncertainty related to the public’s—especially the private investors’—confidence in the future security of private property rights, which can be impaired by future regulatory changes (e.g., Dodd-Frank and Obamacare regulations), court decisions, administrative twists and turns, tax increases in various forms (e.g., Obamacare penalties enforced through the income-tax system), monetary-policy changes that threaten the dollar’s purchasing power and distort the allocation of credit, and personnel changes in the government’s corps of executives, judges, and assorted capos.

Unlike the commentators I mentioned in the first paragraph, I do not perceive cutbacks or interruptions in government spending as matters of critical concern except to the members of special interests, including government employees and contractors themselves. For the overwhelming majority of the people, reduced government spending is a godsend, even if many people do not know that it is, because it helps to reduce the scale and scope of the government’s destructive involvement in economic life and because it reduces the crowding out of productive private activities, such as private provision of education and of assistance to the poor and others in economic distress. Shifting resources from the government to private individuals is always a beneficial development, given that the government not only wastes many resources, but actually employs resources in destructive ways that harm the welfare of the general public.

Mainstream commentators seem to get their knickers in a twist especially when government employees are furloughed or some sort of government handout is temporarily suspended. In anything but the shortest-term perspective, however, these developments are positive, not negative. It is good to get people off the dole, and if budgetary mismanagement brings about this result, so much the better for the mismanagement. Above all, people need to learn to assess such incidents without falling back into the misleading framework of Keynesian analysis. The inclusion of government purchases in GDP has worked much mischief over the years, and the current wailing and gnashing of teeth over the government’s inability to produce its budgets responsibly and on schedule is only the latest occasion for such misinterpretation of the government’s role in the economy. If only people could bring themselves to see the government for what, all in all, it is—a force for plunder, waste, and destruction—they might then have the wit to worry less about government spending cutbacks and to worry more about the manifold ways in which the government generates what I call regime uncertainty.

Robert Higgs is Retired Senior Fellow in Political Economy at the Independent Institute, author or editor of over fourteen Independent books, and Founding Editor of Independent’s quarterly journal The Independent Review.
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