Bloomberg: Put Higgs’s Name on That Nobel

In a Bloomberg report today, “Economic Recovery Is Languishing as Americans Await Signal of Better Times,” Peter Coy casts about for explanations for why the economy is not in recovery, and ends with this offer:

A Nobel prize goes to whoever can end this routine and get America growing again.

OK, Mr. Coy, send the Nobel to Robert Higgs. Your story is a case-study outline of the phenomenon Dr. Higgs dubbed “Regime Uncertainty”. The prescription is straight-forward: get rid of the rash of thousand-page legislation being passed, containing no one knows what or at what cost (e.g., ObamaCare), and stop all bail-outs, “stimulus,” and further diversions of resources from the private sector to the public.

As Dr. Higgs outlines in his post “The Great Divergence: Private Investment and Government Power in the Present Crisis,” here,

A government growing in so many different directions at once, with many additional initiatives—qqqsuch as higher tax rates, new taxes on energy use, and new restrictions on financial service providers—qqqstill awaiting enactment or regulatory specification, creates tremendous uncertainty for anyone contemplating a long-term investment: who knows what the contours of future government exactions, restrictions, and requirements will be, and hence whether a particular investment will prove to be profitable or not?

“Ending this routine” would have results similar to the last time such a “routine” was ended—the wake of World War II, when, with FDR dead, his New Deal policies were abandoned and government spending dropped 40%. Despite all Keynesian predictions to the contrary, and 10 million newly “unemployed” (i.e., conscripted soldiers) being suddenly dumped into the workplace, America got growing again at unprecedented rates:

The year 1946, when civilian output increased by about 30 percent, was the most glorious single year in the entire history of the U.S. economy. By 1948, real output was back on its long-run growth trend, and during the decades that followed, the economy was spared the sort of deep and long debacle that a congeries of wrongheaded government policies had caused during the 1930s.

As Dr. Higgs documents in his great book, Depression, War, and Cold War:

In 1945, the death of Roosevelt and the succession of Truman and his administration completed the shift from a political regime that investors perceived as full of uncertainty to one in which they felt much more confident about the security of their private property rights. Sufficiently sanguine for the first time since 1929, and finally freed from government restraints on private investment for civilian purposes, investors set in motion the postwar investment boom that powered the economy’s return to sustained prosperity, notwithstanding the drastic reduction of federal government spending from its extraordinarily elevated wartime levels.

Mary L. G. Theroux is Senior Vice President of the Independent Institute. Having received her A.B. in economics from Stanford University, she is Managing Director of Lightning Ventures, L.P., a San Francisco Bay Area investment firm, former Chairman of the Board of Advisors for the Salvation Army of both San Francisco and Alameda County, and Vice President of the C.S. Lewis Society of California.
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