Cato’s Tad DeHaven has been discussing what is referred to as “regime uncertainty,” or the uncertainty relating to the effects of economic policies that businesses see as detrimental to their future. This term was coined by Austrian theory economist Robert Higgs in his analysis of FDR’s New Deal. The idea is that such uncertainty hinders recovery because business people don’t know the impact of higher taxes, new regulations, and health care legislation, and are reluctant to spend or hire until they understand the impacts.
There are some good examples of this in DeHaven’s original article, linked above.
Today he sent out an excerpt from a Washington Post editorial which brings up this issue:
But as analysts ponder the mystery of weak private-sector hiring despite signs of economic growth, it’s worth asking what role is played by government-induced uncertainty. With the federal government promoting major changes in health care, financial regulation and energy law, it wouldn’t be surprising if some companies are more inclined to wait and see than they might otherwise be. And that’s especially true when they look at looming American indebtedness and the effect that could have on long-term interest rates.
This is interesting because it cuts across traditional left-right ideology: everyone understands that business needs to recover, create jobs, hire people, spend on goods, in order for the economy to prosper. Even liberals understand where taxes come from.
This reminded me of a recent comment I received from a reader in the Midwest:
As a small business owner, I have watched 6 competitors go out of business in the last 18 months. We had the largest market share in service and that is what has sustained us as new sales went into the toilet. New sales increased pretty rapidly in May until the 15th. Then they completely disappeared, like late 2009, but service is still very robust. Many business owners I talk to are shocked when I tell them about the new 1099 reporting requirements beginning in 2011, and about the increased cost of compliance, adding expenses with no revenues. We are all depressed about the new Health Care bill as there is so much unknown. We all add on overtime to handle business until we are absolutely overwhelmed–we don’t believe this recovery is sustainable. My wife’s employer is already cancelling open job requisitions because they have seen a drop off in business (Fortune 500 company). Only 4 more job reports before elections, and we know one of them is going to be very bad with all the Census taker layoffs.
