It's the Intervention

It is government intervention that is holding back the economy. Not a Hansen-Summers secular stagnation, nor another savings glut. So says Stanford economist John B. Taylor. In this he echos what Robert Higgs, John Cochran, and others have been saying for a long time.

As Taylor notes:

In the current era, business firms have continued to be reluctant to invest and hire, and the ratio of investment to GDP is still below normal. That is most likely explained by policy uncertainty, increased regulation, including through the Dodd Frank and Affordable Care Act, about which there is plenty of evidence, especially in comparison with the secular stagnation hypothesis.

As I explain in my book and elsewhere, one of the key sources of economic progress (and I am here merely echoing Mises and Rothbard) is investment capital accumulation. Private property is crucial for capital formation, because if a potential capitalist investor fears he is not secure in his property he will be less willing to restrict present consumption in order to engage in productive investment. He is less willing to save and invest because he estimates that the chances are significantly high that his investment will be lost do to regulation of one form or another. Regulations make it either more costly and, hence, less profitable to engage in productive investment or his investment could even be sunk in a process producing a product that is banned before the project even comes to fruition. Such an institutional environment places a significant damper on investment.