Ezra Klein, in the course of knocking down BS about ‘regulatory uncertainty,’ makes the concession to reasonableness that “regulatory uncertainty is potentially an issue on the margins.”
I think this is the wrong way of conceding what’s correct about the uncertainty talking point, and then once you understand what’s correct about it you’ll see why it’s totally wrong as an explanation of slow economic growth. Here’s the punchline, though — uncertainty about the future course of regulation is a huge drag on economic growth. It would be substantially easier to invest capital in productive enterprises if the state of future regulations was perfectly predictable. By the same token, if there were no tax uncertainty it would be easier to invest capital in productive enterprises. But both of these points are subsidiary to the larger point that if the future were completely predictable we’d have a lot more economic growth. Remember in Back To The Future II when Biff uses his knowledge of the past to get rich? This works on a social level. Ignorance about what the future will look like is inefficient.
At the same time, it’s a constant and ineradicable aspect of modern life. The problem for the “regulatory uncertainty” talking point is that there’s zero evidence that the level of “regulatory uncertainty” increased in the past three years and nobody has any idea what reducing the level of “regulatory uncertainty” would mean. The people who say the words “regulatory uncertainty” just mean “we should adopt the regulatory policies that I think are best.” And of course we should adopt the best regulatory policies. But we disagree about what those policies are, so it’s uncertain which policies will be adopted in the future. C’est la vie. Nothing has changed here.
By contrast, demand has changed a lot. At some point in 2008, the real estate market and the financial panic led to a catastrophic decline in purchases. When aggregate spending collapses, lots of businesses that were previously sound become unsound. But if people were buying more stuff, some of those businesses would become sound again. And some other new businesses that didn’t exist at the time would come into being. And some successful businesses would expand operations. What’s more, while we can’t do anything to change the fact that the future is uncertain, we can change the fact that people aren’t buying more stuff. If we gave everyone a $1,000 platinum coin, sales would go up. Businesses would expand.
Similarly, Jay Livingston observes that a sector-by-sector analysis is hard to square with a story about increased uncertainty. Has the surge in regulatory uncertainty been specifically concentrated in the construction and hospitality sectors while leaving natural resource extraction unscathed? Isn’t it more plausible to say that demand for natural resources has continued to be robust thanks to third world growth?