Thursday, September 16, 2010

Evidence of Regime Uncertainty

Robert Higgs
As I have written before, one of Robert Higgs' most important contributions to the political economy literature is his work on regime uncertainty. According to Higgs, regime uncertainty can occur when government intervention creates an environment in which capitalists and entrepreneurs have little idea when the next interventionist shoe will drop. Such heightened regulatory uncertainty adds to the normal uncertainty of any entrepreneurial endeavor and discourages potential investors from investing, thereby reducing overall productive activity.

Higgs has done excellent work explaining how regime uncertainty contributed to and greatly prolonged the Great Depression. He and Mary Theroux of the Independent Institute have both noted increasing evidence that regime uncertainty has also set in presently and is largely responsible for our sluggish non-recovery recovery.

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