We often hear that the economy has been sluggish due to uncertainty, but actually the problem is that so many decision makers are certain — certain that the Obama regime’s massive politicization of the economy will continue unabated. The letter below in today’s Wall Street Journal makes that point:

Uncertainty Is Bad, but Certainty of Bad Policies Hurts

Regarding Vanguard Group CEO Bill McNabb’s “Uncertainty Is the Enemy of Recovery” (op-ed, April 29): Additional support for the idea that federal government commitment to sound fiscal policy is important for economic growth is provided by the three historical tax cuts associated with Treasury Secretary Andrew Mellon in the first half of the 1920s, John F. Kennedy in 1964 and Ronald Reagan in the first half of the 1980s. The major portions of the tax cuts weren’t fully realized until mid-decade, and economic growth was actually higher in the several years before the major cuts than in the several years after. Employers, workers, savers and investors in the early parts of these decades were undoubtedly confident of the direction of federal government tax and regulatory policies looking ahead, and they made commitments accordingly.

In recent times we have experienced three years of slow economic recovery from the great recession, particularly in the case of employment. The regime uncertainty faced by participants in our economy must play a role here, just as regime certainty likely did in previous expansions. Dodd-Frank and ObamaCare regulations, already thousands of pages long, are difficult to interpret and not yet half written; environmental regulations may or may not allow energy development; corporate tax rates may or may not be reduced; no progress is being made on the federal government deficit or on entitlement reforms; central banks around the world are in a race to the bottom and are financing much of their governments’ expenditures through money printing. How does this turn out well?

Is it any wonder that in this atmosphere employers are reluctant to commit to new hires; entrepreneurs are reluctant to invest in new plants and equipment or new businesses; and those not working are questioning the value of a job search?

Prof. Douglas Coate

Rutgers University