U. Chicago economists Gary Becker, Steven Davis, and Kevin Murphy strike a Higgsian note in an op-ed in today’s Wall Street Journal:
We believe two factors are behind this rather tepid rebound…. The second factor is less obvious, but possibly also of great importance. Liberal Democrats won a major victory in the 2008 elections, winning the presidency and large majorities in both the House and Senate. They interpreted this as evidence that a large majority of Americans want major reforms in the economy, health-care and many other areas. So in addition to continuing and extending the Bush-initiated bailout of banks, AIG, General Motors, Chrysler and other companies, Congress and President Obama signaled their intentions to introduce major changes in taxes, government spending and regulations—changes that could radically transform the American economy.
Obviously Chicago free-market economists are not going to be on the same page as a Democratic administration. But note that they’re not criticizing Obama and co. for pursuing what they see as a flawed economic policies. Instead, they’re concerned about the timing scope of significant policy changes during a recession. That’s not Chicago economics — it’s regime uncertainty economics.
The authors give a laundry list of the administration and Congress’s unpredictable moves, and also include some evidence of the effects they are having on business:
A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows. The same survey reveals that only 7% of small businesses see the next few months as a good time to expand. Only 8% of small businesses report job openings, as compared to 14%-24% in 2008, depending on month, and 19%-26% in 2007.
The weak economy is far and away the most prevalent reason given for why the next few months is “not a good time” to expand, but “political climate” is the next most frequently cited reason, well ahead of borrowing costs and financing availability. The authors of the NFIB December 2009 report on Small Business Economic Trends state: “the other major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy. The ‘turbulence’ created when Congress is in session is often debilitating, this year being one of the worst. . . . There is not much to look forward to here.”
In other words, how can businesses play the game when they don’t know the rules?