America’s future economic outlook: Part IV, the cusp

Published 7:00 am Friday, July 15, 2016

Since my retirement several years ago, my wife and I, along with Chanel (the dog) and Jazzy (our cat), spend an hour or so at the beginning of every morning drinking coffee and discussing what we plan to do during the day. One of my goals for a particular day was to write this article.
As conversation seemed to lull that morning, I looked at her and asked, “Would you like to learn about ‘Regime Uncertainty’ today?” I got the response that I had anticipated. Hesitating momentarily, she said, “not really.” The look she gave me said far more than her verbal response. Fellow husbands know that look from their wife that conveys the thought of, “Do you need to have a psychological evaluation?”
However, she understands the logical results of the phrase when friends or family members receive a “lack of work notice” and a loss of job because of the weak economy.
She also knows that perhaps it is more prudent as a consumer to postpone high dollar, discretionary purchases until the economy gets better.
Robert Higgs is a highly respected economic historian and economist who coined the phrase, “Regime Uncertainty.” He received his Ph.D. in Economics from the John Hopkins University.
Higgs formulated his theory while studying the Great Depression of the 1930’s. The theory states that when economic problems occur, the government can do more harm than good by passing legislation that investors deem as too far reaching and unnecessary. Due to these fears, investors will “go to the sidelines” so to speak and hold their cash from further investing.
Our free market economic system operates as follows: investors invest their money for long-term commitments to establish businesses to produce goods, which creates jobs for workers.
Workers make money and buy goods. Investors make profits from the sale of goods, and reinvest those profits for additional business expansion. Theoretically, that cycle continues and the nation experiences economic growth.
But, if the investors withhold their profits, the economy suffers. This phenomenon gives rise to the extended duration of these economic problems. The Roosevelt administration was extremely anti-business, so the Great Depression lasted some 10 years.
Higgs has also identified the “Ratchet Effect” that states that once a crisis has passed, state power usually recedes again, but it rarely returns to its original levels; thus each emergency leaves the scope of government at least a little wider than before. One example of this is the current debate about our government monitoring citizens for security purposes since 9/11.
The latest recession has been going for eight years with no end in sight. How long will it last? The Obama administration has also been very anti-business with overreaching taxes and regulations, so what did our business investors do? They chose the path of least resistance, and took our productivity and jobs to foreign countries.
America’s economic problems are essentially the government’s structural problems, and we are relying on the Federal Reserve System to solve those problems by monetary issues with credit and interest rate policies. For the Fed, it is like pushing on a string. In 2010, we got the Dodd-Frank banking and the Obamacare health insurance laws. These laws have caused great uncertainty for investors.
The next Column will be about GDP computation.

By Aaron Russell

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